NAVY SHIPBUILDING

Opportunities Exist to 

Improve Practices 

Affecting Quality

Report to Congressional Committees

November 2013

GAO-14-122

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-122, a report to 

congressional committees

November 2013

NAVY SHIPBUILDING

Opportunities Exist to Improve Practices Affecting 

Quality 

Why GAO Did This Study

The Navy expects to spend about $15 

billion per year to provide its fleet with 

the most advanced ships to support 

national defense and military 

strategies. Problems with recently 

delivered ships have focused attention 

on quality issues.

House Report No. 112-110, 

accompanying the Department of 

Defense Appropriations Bill, 2012,

mandated that GAO review the Navy's 

quality assurance processes for new 

ship construction. This report 

discusses, among other issues, (1) 

quality problems in constructing 

recently delivered ships and Navy 

actions to improve quality and (2) key 

practices employed by leading 

commercial ship buyers and 

shipbuilders to ensure quality and how 

these compared with Navy practices. 

GAO analyzed Navy data on ship 

quality from 2006 to May 2013 and 

spoke with Navy officials and 

shipbuilders. GAO also reviewed 

deficiency data for commercial ships 

and spoke with buyers and builders.

What GAO Recommends

To improve the construction quality of 

ships delivered to the Navy, GAO is 

recommending, among other things, 

that the Navy clarify policy on when 

deficiencies should be addressed, 

provide guidance on contract quality 

requirements, and assess applicability 

of certain commercial practices to 

Navy shipbuilding. DOD agreed with 

two recommendations and partially 

agreed with three, stating for example 

that current policy is adequate but that 

the Navy would monitor deficiency 

trends. GAO believes that the 

recommendations remain valid as 

discussed in the report.

What GAO Found

The Navy has experienced significant quality problems with several ship classes 

over the past several years. It has focused on reducing the number of serious 

deficiencies at the time of delivery, and GAO’s analysis shows that the number of 

deficiencies—particularly “starred” deficiencies designated as the most serious 

for operational or safety reasons—has generally dropped. Nonetheless, the Navy 

continues to accept ships with large numbers of open deficiencies (see figure 

below as an example; although total deficiencies have declined for this ship 

class, the last ship still had about 1,000 deficiencies that the shipbuilder was 

responsible for correcting). Accepting ships with large numbers of uncorrected 

deficiencies is a standard practice and GAO found that there are varying 

interpretations of Navy policy with regard to when the defects should be resolved. 

In 2009, the Navy organization that oversees ship construction launched the 

Back to Basics initiative to improve Navy oversight of ship construction. However, 

a key output of the initiative promoting consistent and adequate quality 

requirements in Navy contracts has yet to be implemented. 

Deficiencies at Time of Delivery for LPD 17 Ship Class

Although the environment in which leading commercial ship buyers and builders 

operate differs in many ways from the Navy’s, some commercial practices aimed 

at helping to ensure that ships are delivered with a minimum number of 

deficiencies may be informative for the Navy. Throughout the course of 

commercial shipbuilding projects, significant numbers of quality defects and 

instances of non-conforming work are identified. However, leading commercial 

ship buyers and shipbuilders make great efforts to ensure that these issues are 

resolved prior to delivery. Further, commercial ship buyers establish clear lines of 

accountability and hold their personnel responsible for ensuring the shipbuilder 

delivers a quality vessel. While commercial ship buyers focus on regularly 

witnessing in-process work through roaming patrols and impromptu inspections, 

Navy processes at the shipyards place less emphasis on in-process work. 

Moreover, leading commercial shipbuilders have strong quality management 

processes that track quality problems to the worker or supervisor level. Navy 

shipbuilding contractors have historically experienced difficulties in holding 

production workers and supervisors accountable for their work, but some of the 

shipyards reported they are making progress on increasing worker accountability. 

View GAO-14-122. For more information, 

contact Michele Mackin at (202) 512-4841 or 

mackinm@gao.gov.
Page i GAO-14-122 Navy Shipbuilding

Letter 1 

Background 4

The Navy Has Reduced Deficiencies at Delivery but Still Accepts 

Some Ships with Numerous Construction Deficiencies 16

Commercial Firms Resolve Quality Deficiencies before Delivery, 

with Some Practices Potentially Informative for Navy in Spite of 

Different Environment 34

Classification Societies Play a Role in Commercial and Navy 

Shipbuilding 52

Conclusions 56

Recommendations for Executive Action 58

Agency Comments and Our Evaluation 59

Appendix I Objectives, Scope, and Methodology 63

Appendix II Stages of Shipbuilding 69

Appendix III Lewis and Clark Dry Cargo and Ammunition Ship Class 

(T-AKE) 72

Appendix IV San Antonio Amphibious Transport Dock Ship Class 

(LPD 17) 74

Appendix V Littoral Combat Ship (LCS) Class 76

Appendix VI Arleigh Burke Guided Missile Destroyer Ship Class 

(DDG 51) 78

Appendix VII Selected Quality Issues in Navy Ship Classes 80

Contents 
Page ii GAO-14-122 Navy Shipbuilding

Appendix VIII Characteristics of Select Commercial Ships and Offshore 

Structures 89

Appendix IX Navy Shipbuilding Contract Types 91

Appendix X Comments from the Department of Defense 93

Appendix XI GAO Contact and Staff Acknowledgments 99

Tables

Table 1: Unresolved Deficiencies for Select Commercial Ships at 

Key Delivery Milestones 37

Table 2: Key Events Occurring During Navy and Commercial 

Shipbuilding 69

Table 3: Open Deficiencies on T-AKE Class Ships at Various Points 

in Time after Delivery 72

Table 4: Open Deficiencies on LPD 17 Class Ships at Various Points 

in Time after Delivery 74

Table 5: Open Deficiencies on LCS Class Ships at Various Points in 

Time after Delivery 76

Table 6: Open Deficiencies on DDG 51 Class Ships at Various 

Points in Time after Delivery 78

Table 7: Key Characteristics of Selected Commercial Ships and 

Offshore Structures 89

Table 8: Common Navy Shipbuilding Contract Types and 

Associated Risks to Quality Goals 91

Figures

Figure 1: Quality’s Integral Role in Achieving Schedule, Cost, and 

Performance and Reliability Goals 5

Figure 2: Simplified Organizational Chart of Navy Organizations 

Involved in the Construction of New Navy Ships 8
Page iii GAO-14-122 Navy Shipbuilding

Figure 3: Locations of Major Navy Contractor Shipyards and 

Associated Product Lines 13

Figure 4: Open Starred Deficiencies at Delivery for LPD 17 Ship 

Class 17

Figure 5: Open Starred Deficiencies at Delivery for DDG 51 Ship 

Class 18

Figure 6: Open Starred Deficiencies at Delivery for T-AKE Ship 

Class 19

Figure 7: Open Starred Deficiencies at Delivery for LCS Ship Class 20

Figure 8: Non-Starred Deficiencies at Time of Delivery for T-AKE 

Ship Class 21

Figure 9: Non-Starred Deficiencies at Time of Delivery for LPD 17 

Ship Class 23

Figure 10: Non-Starred Deficiencies at Time of Delivery for LCS 

Ship Class 24

Figure 11: Non-Starred Deficiencies at Time of Delivery for DDG 51 

Ship Class 25

Figure 12: Select Quality Issues on Ships Delivered from 2004 to 

2012 29

Figure 13: Simplified Organizational Chart of SUPSHIP Indicating 

Those Departments Having Delegated Responsibilities 45

Figure 14: Actions Taken by a Commercial Firm to Improve Quality 47

Figure 15: Example of Classification Society Technical Assistance 53

Figure 16: Selected Quality Issues on USS George H.W. Bush (CVN 

77) 80

Figure 17: Selected Quality Issues on DDG 51 Class Ships 81

Figure 18: Selected Quality Issues on USS Freedom (LCS 1) 82

Figure 19: Selected Quality Issues on USS Independence (LCS 2) 83

Figure 20: Selected Quality Issues on USS Makin Island (LHD 8) 84

Figure 21: Selected Quality Issues on LDP 17 Class Ships 85

Figure 22: Selected Quality Issues on SSN 774 Class Submarines 86

Figure 23: Selected Quality Issues on USNS Howard O. Lorenzen

(T-AGM 25) 87

Figure 24: Selected Quality Issues on T-AKE Class Ships 88
Page iv GAO-14-122 Navy Shipbuilding

Abbreviations

ABS American Bureau of Shipping

DOD Department of Defense

FPSO Floating Production, Storage and Offloading vessel

INSURV U.S. Navy Board of Inspection and Survey

LCS Littoral Combat Ship 

NAVSEA Naval Sea Systems Command 

NAVSEA 02 Naval Sea Systems Command Contracting Directorate

NAVSEA 04 Naval Sea Systems Command Logistics, Maintenance & 

 Industrial Operations Directorate

NAVSEA 04Z Naval Sea Systems Command Logistics, Maintenance & 

 Industrial Operations Directorate, SUPSHIP Management 

 Group

NAVSEA 05 Naval Sea Systems Command Engineering Directorate

NAVSEA 07 Naval Sea Systems Command Undersea Warfare 

 Directorate

NAVSEA 08 Naval Sea Systems Command Nuclear Propulsion 

 Directorate

NAVSEA 21 Naval Sea Systems Command Surface Warfare 

 Directorate 

PEO U.S. Navy Program Executive Office

SUPSHIP Naval Sea Systems Command Supervisor of Shipbuilding, 

 Conversion and Repair

TSM Technical Support Management data system

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Page 1 GAO-14-122 Navy Shipbuilding

441 G St. N.W.

Washington, DC 20548

November 19, 2013

Congressional Committees

The Navy seeks to provide its fleet with the most advanced ships to 

support national defense and military strategies, expecting to spend about 

$15 billion per year building ships. Given the difficult operating 

environments and extended deployments for Navy ships, it is essential 

that they operate as expected. Yet several cases of poor quality in Navy 

shipbuilding programs have focused attention on quality issues for newly 

constructed ships. Many of the problems were attributed to issues with 

basic elements of shipbuilding, such as welding, installation of key 

systems (like propulsion and anchoring systems), and electrical work. The 

impact of poor quality can directly affect operational missions; for 

example, the first ship built in the USS San Antonio class (LPD 17) had to 

undergo emergency repairs during its first deployment that were primarily 

attributed to poor workmanship and a lack of quality control during the 

ship’s construction. Recognizing that quality problems in shipbuilding 

needed to be addressed, the Navy established the “Back to Basics” 

initiative in 2009 to ensure the efficiency and quality of ship construction. 

The initiative focused on the Navy’s Supervisor of Shipbuilding, 

Conversion and Repair (SUPSHIP)—the organization responsible for 

overseeing ship construction processes—and involved senior Naval Sea 

Systems Command leadership and the Navy Program Executive Offices 

responsible for managing the development and procurement of ships.

Also in 2009, we identified best practices from the commercial 

shipbuilding industry and made several recommendations to the 

Department of Defense to improve management of shipbuilding programs 

involving, among other things, knowledge needed at key decision points.1

 

1

See GAO, Best Practices: High Levels of Knowledge at Key Points Differentiate 

Commercial Shipbuilding from Navy Shipbuilding, 

Building on that review, House Report No. 112-110, accompanying the 

Department of Defense Appropriations Bill, 2012 (H.R. 2219), mandated 

that we review the Navy’s quality assurance processes for new ship 

construction. This report assesses (1) the extent to which newly 

constructed ships delivered to the Navy from 2006 through May 2013 had 

quality problems and the actions the Navy has taken to improve quality; 

GAO-09-322 (Washington, D.C.: May 

13, 2009). 

 
 

Page 2 GAO-14-122 Navy Shipbuilding

(2) key practices employed by leading commercial ship buyers and 

shipbuilders to ensure satisfactory quality and the extent to which Navy 

shipbuilding programs employ these practices; and (3) the role of 

classification societies (e.g., the American Bureau of Shipping) in Navy 

and commercial shipbuilding.

To identify the extent to which newly constructed Navy ships had quality 

problems and the actions the Navy has taken to improve quality, we 

reviewed Navy inspection reports, internal Navy reviews with regards to 

ship quality, ship delivery reports, shipbuilding contracts, and other 

documents discussing the quality of ships delivered to the Navy from 

2006 through May 2013. We reviewed data on all ships delivered during

this period but only compared trends in quality from those ship classes 

where multiple ships were delivered during this time period. To determine 

the number and type of deficiencies for each vessel, we obtained and 

analyzed data from the Navy’s Board of Inspection and Survey’s 

(INSURV) Material Inspection data warehouse and the Navy’s Technical 

Support Management (TSM) system. TSM is the primary database 

SUPSHIP uses for tracking the status of new construction deficiencies. 

We reviewed these data for completeness, and when we identified 

obvious discrepancies we brought them to the attention of Navy officials 

and worked with them to understand, correct, or omit the discrepancies. 

We determined that the deficiency data we obtained were sufficiently 

reliable for the purposes of this report with two exceptions. These 

exceptions relate to data for T-AKE class ships. TSM data did not cover 

T-AKE 1 through T-AKE 6. In addition, data for T-AKE 12 had numerous 

data errors and is therefore not reported on. For other T-AKE ships, we 

reviewed deficiency documentation (trial cards) to resolve discrepancies 

between TSM and T-AKE program office data.

We visited eight U.S. private shipyards that build Navy ships and spoke 

with shipyard representatives. We also met with officials and analyzed 

data provided by several Navy organizations, including each of the 

SUPSHIP commands and detachments; INSURV; Program Executive 

Offices and shipbuilding programs; lifecycle and maintenance 

organizations; Fleet Forces Command; the Military Sealift Command; 

Navy Sea Systems Command Engineering, Contracting, and Logistics 

directorates, among others. We catalogued several hull, mechanical, and 

electrical quality problems with each ship class delivered since 2006. To 

create this list of illustrative examples, we asked Navy officials and 

shipbuilding contractor representatives to identify quality problems on 

these vessels. Further, this list focused only on quality issues that pertain 

to the construction of the hull, mechanical, and electrical systems; we did 
 

Page 3 GAO-14-122 Navy Shipbuilding

not include quality issues with weapons systems or other warfighting 

systems. We also reviewed the Navy’s Back to Basics initiative and 

outcomes, as well as other recent efforts to improve the quality of 

shipbuilding.

To learn about practices used by leading commercial ship buyers and 

shipbuilders to ensure quality in new construction vessels, we spoke with 

leading buyers and shipbuilders in the cruise, oil and gas, and 

commercial shipping industries and reviewed our previous shipbuilding 

best practices work. Where possible, we collected documentation and/or 

witnessed quality assurance practices. For the purposes of this review, 

the leading commercial ship buyers we spoke with are companies that we 

identified as leaders in their industry in terms of being top operators of 

cruise ships, oil and gas vessels or containerships, and that agreed to 

participate in our review. We reviewed such indicators as annual sales, 

number of vessels owned or procured, and total market share. Leading 

commercial shipbuilders in this review were also identified as high quality 

shipbuilders by the ship buyers in our review or shipbuilding experts we 

met with. The firms participating in our review included Carnival 

Corporation, Chevron Corporation, Daewoo Shipbuilding and Marine 

Engineering, Ensco plc, ExxonMobil, Hyundai Heavy Industries, A.P. 

Moller-Maersk A/S, Meyer Werft, Noble Corporation, Norwegian Cruise 

Line, Royal Caribbean Cruises, Ltd., Seadrill Ltd., and STX Finland. We 

requested deficiency data from the commercial ship buyers for one or 

more new construction ships they acquired. With the exception of one 

floating production storage and offloading vessel, all of these ships were 

delivered to the buyers in 2012 or 2013. We assessed the reliability of 

these data by obtaining information on the systems that stored the data 

and interviewing ship buyer representatives knowledgeable about the 

data. We determined that the data were sufficiently reliable for the 

purposes of this report. We also identified common processes and tools 

used by these ship buyers and shipbuilders to ensure the expected level 

of quality. To determine the extent to which Navy quality assurance 

processes used commercial best practices, we reviewed data and 

information obtained from the Navy and its shipbuilding contractors as 

well as from the leading commercial ship buyers and shipbuilders. We 

also held meetings with SUPSHIP, program, and contracting officials 

about the Navy’s quality practices and during our site visits to the U.S. 

shipyards. We discussed with shipyard representatives their quality 

assurance processes and the steps taken to ensure ships meet the 

Navy’s quality expectations.
 

Page 4 GAO-14-122 Navy Shipbuilding

To better understand the role of classification societies in Navy and 

commercial shipbuilding, including the American Bureau of Shipping 

(ABS), we met with engineering and marine surveying representatives 

from ABS at the Navy contractor shipyards where they maintain a 

presence to obtain an overview of how they conduct their work. We also 

held discussions with officials from several Navy organizations, including 

SUPSHIP and Naval Sea Systems Command Engineering Directorate, as 

well as representatives from Navy shipbuilding contractors on the role of 

ship classification in Navy shipbuilding. We reviewed the classification 

rule set developed by the Navy and ABS for the Navy’s surface 

combatants, as well as other classification rule sets pertaining to Navy 

and commercial vessels. We also spoke with representatives from other 

classification societies, including Det Norske Veritas and Lloyd’s Register, 

to discuss their approach to classification of commercial and navy 

vessels, and met with commercial ship buyers and shipbuilders to discuss 

the classification process.

Appendix I contains additional detail on our scope and methodology.

We conducted this performance audit from March 2012 to November 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

In general, a quality product is one that performs as expected and can be 

depended on to perform when needed. A quality product is also one that 

is free of deficiencies. For the purposes of this review, we define 

deficiencies as items that require corrective action to bring the material 

condition or performance of a product into compliance with required 

standards.2

 

2

A variety of terms are often used to indicate a work item is deficient, such as defect, 

nonconformance, corrective work or corrective action, and items included on a “punch” list 

(essentially a list of all remaining work and corrective work necessary to meet the ship 

buyer’s requirements). Remaining work or incomplete work refers to work that has yet to 

be performed in order to make a finished product or previously identified deficiencies that 

have yet to be corrected.

Background 
 

Page 5 GAO-14-122 Navy Shipbuilding

Performance, cost, schedule, and quality goals are interrelated. Improving 

quality within an organization to achieve the desired level of performance 

and reliability requires time and money in the short term. But in the longer 

term, such efforts can reduce costs and production times, as processrelated costs—such as labor and materials needed to correct defects—

are reduced or eliminated. Such production efficiencies have been 

demonstrated by companies that have successfully implemented quality 

philosophies, including the Six Sigma methodology.3

Figure 1: Quality’s Integral Role in Achieving Schedule, Cost, and Performance and 

Reliability Goals

Six Sigma and other 

quality philosophies establish a framework by which the process of 

production can be made more consistent by determining and eliminating 

the root causes of process-related problems, resulting in improved 

quality. Figure 1 demonstrates the interrelationship between schedule, 

cost, performance and quality.

Shipbuilding is a major undertaking within the Navy, and several Navy 

organizations are involved, either directly or indirectly, with the 

acquisition, construction, and fielding of new ships. To some extent, all of 

the organizations described below have a role in helping to ensure the 

Navy acquires ships that meet quality expectations.

 

3

The American Society for Quality defines Six Sigma as a fact based, data driven 

philosophy of quality improvement that values defect prevention over defect detection by 

reducing variation and waste in a process. 
 

Page 6 GAO-14-122 Navy Shipbuilding

• SUPSHIP is the Navy’s primary on-site representative at the private 

shipyards that build Navy ships, and is tasked with overseeing the 

shipbuilder’s production processes. Services provided by SUPSHIP 

include contract administration, project management, engineering 

surveillance, quality assurance, logistics, and financial administration 

of assigned shipbuilding contracts. Typical work activities performed 

by SUPSHIP’s quality assurance department include the following:

• Quality assurance planning activities, such as oversight plans for 

monitoring the shipbuilder’s quality program and periodic 

surveillance plans identifying the areas where quality assurance 

personnel will be allocated.

• Reviews of the shipbuilding contractor’s quality management 

system and work procedures.

• Inspection and testing of the shipbuilder’s completed work, 

including physical inspections, verifications, and equipment 

testing, as well as witnessing or monitoring the ship construction 

process.

• Audits and inspections of the shipbuilder’s work procedures to 

verify that personnel are complying with the procedures.

• Evaluating the results of (1) SUPSHIP’s quality inspections to 

identify quality trends and (2) quality and test data the shipbuilder 

is contractually required to provide the Navy.

• Program Executive Offices (PEO), and the program managers that 

report to them, are responsible for all aspects of life-cycle 

management of their assigned shipbuilding programs, including 

program initiation, ship design, construction, testing, delivery, fleet 

introduction, and maintenance activities.

• The Navy’s Board of Inspection and Survey (INSURV) is an 

independent organization that inspects newly constructed and inservice Navy ships to determine their material condition and reports 

these assessments to Congress and Navy leadership.

• The Naval Sea Systems Command Contracting Directorate 

(NAVSEA 02) awards contracts worth about $24 billion annually for 

new construction ships and submarines, ship repair, major weapon 

systems, and services.

• The Naval Sea Systems Command Engineering Directorate 

(NAVSEA 05) provides the engineering and scientific expertise and 

technical authority for the Navy’s ships, submarines, and associated 

warfare systems.

• The Naval Sea Systems Command Nuclear Propulsion 

Directorate (NAVSEA 08) is responsible for all aspects of the Navy’s 

nuclear propulsion ships, including research, design, construction, 

and operations.
 

Page 7 GAO-14-122 Navy Shipbuilding

• The Military Sealift Command operates and maintains 

approximately 119 non-combatant Navy ships that deliver supplies to 

US forces and conduct specialized missions, such as supporting 

humanitarian aid efforts. Unlike other Navy ships, the ships are 

generally manned by civilian mariners. During construction of these 

vessels, the Command assigns a construction oversight 

representative at the shipyard to monitor compliance with 

requirements.

• The Naval Sea Systems Command Surface Warfare Directorate 

(NAVSEA 21) and Undersea Warfare Directorate (NAVSEA 07)

provide life-cycle support for the Navy’s surface combatants and 

submarines from when they are introduced into the fleet until they are 

no longer in service. In addition, the directorates provide the 

shipbuilding and submarine program offices with information on 

quality problems and lessons learned from ship deployments that may 

be used to improve the construction of subsequent vessels.

• The Defense Contract Management Agency administers contracts 

when delegated that authority by the contracting office. SUPSHIP 

commands generally delegate quality oversight of shipbuilding parts 

and equipment suppliers to the Defense Contract Management 

Agency.

Figure 2 depicts how those Navy organizations fit within the overall 

organizational structure of the Navy.
 

Page 8 GAO-14-122 Navy Shipbuilding

Figure 2: Simplified Organizational Chart of Navy Organizations Involved in the Construction of New Navy Ships
 

Page 9 GAO-14-122 Navy Shipbuilding

Shipbuilding is a complex, multistage industrial activity that includes a 

number of key events that are common regardless of the type of ship 

constructed or whether the buyer is the government or a commercial firm. 

These events are sequenced among four primary phases: precontracting, contract award, design and planning, and construction, with 

each successive phase building upon the work completed in earlier 

stages.4

In the pre-contracting stage, the ship buyer determines the ship’s 

requirements. Early-stage design work occurs that culminates in a set of 

specifications that documents the buyer’s requirements. In the contract 

award phase, the specifications are incorporated into the shipbuilding 

contract that the buyer enters into with the selected shipbuilder(s). After 

entering into the shipbuilding contract, the design and planning phase 

begins. The ship’s detailed engineering design is completed—often in the 

form of a three-dimensional computer aided design model—and consists 

of developing all aspects of the ship’s structures and the routing of major 

distributive systems, such as electrical work or piping. Any necessary 

modeling and simulation analyses, such as testing the structural integrity 

of the design over the service life of the ship, are also completed. In 

addition, during this stage the shipbuilder plans for beginning construction 

and generates two-dimensional drawings that, once approved by the ship 

buyer, will be used by production workers to build the ship.

Ship construction involves the following key events:

• Block fabrication, assembly, outfitting, and erection: Metal plates 

are welded together into elements called blocks—the basic building 

units for a ship. Blocks are generally outfitted with pipes, brackets for 

machinery or cabling, ladders, and any other equipment that may be 

available for installation at this early stage of construction. The blocks 

are then welded together to form grand blocks and erected with other 

grand blocks in a drydock or building area. Outfitting work, painting, 

and pre-commissioning activities take place prior to sea trials.

• Sea trials: Once the shipbuilder is satisfied that the ship is completed, 

the ship embarks on a series of dockside and at-sea tests to evaluate 

overall quality and performance against the contractually required 

technical specifications and buyer’s performance requirements. Navy 

shipbuilding programs generally conduct two sets of sea trials—

 

4

See appendix II, table 2 for a more detailed description of these phases.

Stages of Shipbuilding
 

Page 10 GAO-14-122 Navy Shipbuilding

builder’s trials and acceptance trials.5

• Delivery / acceptance: Following the successful completion of sea 

trials and when the buyer is satisfied that the ship meets 

requirements, the shipyard delivers the ship to the buyer. In Navy 

shipbuilding, the official transfer of custody occurs when the Navy 

signs a Material Inspection and Receiving Report (Form DD 250).

SUPSHIP inspectors are 

generally responsible for observing and identifying deficiencies during 

the builder’s sea trials, while acceptance trials are observed by 

inspectors from INSURV, the Navy’s inspection board.

Post-delivery activities that are specific to Navy shipbuilding, which can 

generally take up to a year to complete, include the following:

• Final outfitting, post-delivery tests: Following delivery and until the 

ship sails away from the shipbuilder’s yard—usually anywhere from 

10 to 90 days after delivery—the crew boards the ship and begins 

training, and the ship’s mission systems are installed. Additional 

training and operational tests of mission systems occur at the ship’s 

home port.6

• Final contract trials: INSURV inspectors conduct a second round of 

sea trials to assess whether the ship and all mission equipment are 

operating as intended.

• Post Shakedown Availability: A period of planned maintenance 

follows final contract trials. During this time, class-wide upgrades and 

correction of new or previously identified deficiencies that are the 

government’s responsibility also occur.

• Obligation and Work Limiting Date: The official date on which full 

responsibility for funding the ship’s operation and maintenance is

transferred from the acquisition command to the operational fleet.

Construction-related quality deficiencies on Navy ships can be identified 

at all points throughout the shipbuilding process, from initial block 

fabrication to sea trials up through delivery. During acceptance trials, 

INSURV inspectors label the most serious issues as “starred” 

deficiencies. These issues can significantly degrade a ship’s ability to

perform an assigned primary or secondary operational capability or the 

 

5

In some instances, commercial ships, such as liquefied natural gas carriers or drill ships, 

may undergo additional sea trials following delivery to test specific equipment related to 

the ships’ missions and intended uses.

6

On nuclear powered Navy ships, the ship’s crew begins boarding and training prior to 

ship delivery.
 

Page 11 GAO-14-122 Navy Shipbuilding

crew’s ability to safely operate and maintain ship systems. Because of 

their importance, starred deficiencies must be corrected by the builder or 

waived by the Chief of Naval Operations prior to ship delivery.

In addition to starred deficiencies, INSURV inspectors categorize other 

types of deficiencies—each of which represent a piece of the vessel that 

is not in compliance with Navy standards and/or contract specifications at 

the time of inspection. While not deemed as serious as starred 

deficiencies, these items can nonetheless affect the quality of life and 

safety of the sailors on board the vessel or the operability of the ship. 

INSURV categorizes these issues into three parts based on the 

professional judgment of its inspectors:

• Part I deficiencies are very significant in that they are likely to cause 

the ship to be unseaworthy or to substantially reduce the ship’s ability 

to carry out its assigned mission. “Part I Safety” is a sub-category that 

INSURV uses to indicate that an issue is severe enough that the ship 

is unsafe to operate until corrected. All starred deficiencies are Part I 

deficiencies but not all Part I deficiencies are starred. An example of a 

Part I starred deficiency would be an anchor that when deployed 

during testing was not fully retrievable.

• Part II deficiencies involve less significant material degradation but 

should be corrected to restore the ship to required specifications. Part 

II deficiencies can also have a safety designation. Examples are wide 

ranging and can include items such as missing signage, or areas of 

the ship having missing or damaged paint and coatings.

• Part III deficiencies are generally categorized as things that prevent 

the ship from meeting Navy standards but are cost prohibitive to fix. 

An example is a lifeboat compartment that is too small to fit the size of 

a lifeboat necessary to meet Navy requirements.

While INSURV inspectors identify deficiencies during acceptance trials, 

throughout the ship construction process SUPSHIP quality inspectors, 

during the normal course of their work, may observe work being 

performed that is not in accordance with the technical specifications, 

quality requirements included in the contract between the Navy and the 

shipbuilder, or the shipbuilder’s work procedures. In such instances, 

SUPSHIP inspectors will issue a request for the builder to correct the 

deficient work. Depending on the severity and extent of the problems, 

SUPSHIP’s quality officials may send a request for corrective action to 

the builder to determine the cause of the problems, correct the affected 

work, and improve its work processes so that the problems will not 

reoccur. Once the shipbuilder takes the appropriate actions, SUPSHIP 

closes out the corrective action request. At the time of the builder’s sea 
 

Page 12 GAO-14-122 Navy Shipbuilding

trials, any unresolved SUPSHIP requests for corrective action are 

generally grouped together with deficiencies identified by SUPSHIP 

inspectors during the builder’s sea trials process.7

As opposed to the commercial buyers included in our review, which 

typically operate in a robust, competitive environment, the Navy has a 

limited industrial base to build its ships. For example, throughout the 

world there are at least 12 shipbuilding and offshore marine companies 

that ship buyers in the oil and gas sector can choose from to build their 

vessels. In contrast, two U.S. Navy shipbuilding contractors—General 

Dynamics and Huntington Ingalls Industries—own all but three of the 

larger shipyards, and each yard is specialized to build specific types of 

ships. For example, aircraft carriers can only be built at one location. In 

addition to building Navy ships, two of the shipyards, General Dynamics 

NASSCO and V.T. Halter Marine, also build vessels for commercial 

shipping firms. Figure 3 depicts the major U.S. shipbuilders and the types 

of ships they build.

 

7

On non-nuclear ships, when deficiencies identified during the builder’s sea trials are not 

resolved prior to acceptance trials, some of the uncorrected deficiencies are transferred 

and grouped together with the deficiencies INSURV inspectors identify during the 

acceptance trials process, if the inspectors determine that the deficiencies pertain to Navy 

operational capabilities, contracted requirements, and safety regulations.

Navy Shipbuilding 

Environment 
 

Page 13 GAO-14-122 Navy Shipbuilding

Figure 3: Locations of Major Navy Contractor Shipyards and Associated Product Lines

Note: Auxiliary ships include transport, cargo, and ammunition ships.

The Navy uses several different types of contracts for shipbuilding 

programs. The Navy will often use cost-reimbursement contracts for the 

first ships of a new class, as in many instances the Navy and its 

shipbuilding contractors do not have a full understanding of the costs and 

effort needed to build and deliver the ships. Such contracts provide for 

payment of allowable incurred costs, to the extent prescribed in the 

contract. The Navy also typically includes incentive or award fees on 

these contracts. Our prior work has shown that this type of contract 

places more cost risk on the government in the event that the shipbuilder 
 

Page 14 GAO-14-122 Navy Shipbuilding

is unable to deliver the ship on time and within budget.8 For shipbuilding 

programs where the Navy has greater certainty about costs and risks, the 

Navy typically employs fixed-price-incentive contracts. Fixed-priceincentive (firm target) contracts include a target cost, target profit, ceiling 

price (maximum price) and a formula used to determined the shipbuilder’s 

profit that are negotiated at the outset. Final costs that are above the 

target cost but below the ceiling price are shared between the Navy and 

shipbuilder through the profit adjustment formula. If the final costs exceed 

the ceiling price, the shipbuilder is generally responsible for most 

additional costs. In some instances the Navy will use a firm-fixed-price 

contract, in which the final price of the ship is agreed to at the outset. This 

contract type generally places upon the contractor maximum risk and full 

responsibility for all costs.

The maritime industry has certain requirements to ensure ships meet a 

minimum level of safety and quality. Under the International Maritime 

Organization conventions, uniform requirements have been established 

to, among other things, ensure safety of life while at sea and 

environmental protection.9

 

8

See 

These requirements stipulate that ships are 

designed, constructed, and maintained in accordance with the rules of a 

recognized classification society or with applicable national standards that

provide an equivalent level of safety. Classification societies, such as the 

American Bureau of Shipping (ABS), Det Norske Veritas, and Lloyd’s 

Register, develop rules defining a minimum level of technical standards 

that are applied to ships. Once a ship is “classed” with a certificate 

indicating that it meets a minimum level of safety and quality, the ship is 

subject to periodic inspection to verify that it continues to meet the 

applicable rules of the issuing classification society. In many instances, 

shipbuilders also use classification societies to audit their quality 

management systems as an independent third-party, which often is 

needed to maintain certain certifications such as the International

GAO-09-322 and, GAO, Defense Acquisitions: Improved Management Practices 

Could Help Minimize Cost Growth in Navy Shipbuilding Programs, GAO-05-183 

(Washington, D.C.: Feb. 28, 2005). 

9

The International Maritime Organization is the United Nations’ organization responsible 

for maritime affairs and develops international treaties in this area. For example, the 

Safety of Life at Sea Convention is generally regarded as the most important of all 

international treaties concerning the safety of commercial ships, and specifies minimum 

safety standards for the construction, equipment and operation of certain ships.

Classification Societies
 

Page 15 GAO-14-122 Navy Shipbuilding

Organization for Standardization’s ISO 9001 (quality), 14001 

(environmental), and 18001 (occupational health and safety) series of 

management systems standards.10

Many of these international shipping requirements regarding classification 

do not apply to Navy ships.11 However, in some instances the Navy 

voluntarily complies with certain maritime and commercial classification 

requirements, such as for ships operated by the Military Sealift 

Command.12 Beginning in 2003, the Navy entered into an agreement with 

ABS to assist with redefining the Navy’s standards for the design and 

construction of its non-nuclear surface combatant ships—surface ships 

that are designed to engage in attacks against land, air, and sea 

targets—to be more consistent with the classification process used on 

commercial and Military Sealift Command-operated ships. The result of 

this effort was development of the Naval Vessel Rules, which establish a 

minimum set of requirements for the basic construction of the Navy’s 

surface combatant ships.13

 

10In particular, ISO 9001 certification is commonly obtained by all types of manufacturing 

and production companies and can indicate to potential customers that a company has 

established and implements a defined minimum level of quality policies and standards.

In addition, the Navy required shipbuilding 

contractors to contract with ABS to pilot the application and 

implementation of the Naval Vessel Rules on the USS Zumwalt (DDG 

1000) and Littoral Combat Ship (LCS) shipbuilding programs. Under this 

arrangement, ABS involvement in the LCS and DDG 1000 programs is 

similar to that of a commercial shipbuilding project in which, throughout 

design and construction of the ship, the classification society acts as an 

independent third-party assessor to ensure the ship is in compliance with 

11Navy officials stated that the certification requirement for submarines is as rigorous as 

that of classification societies. During the design, construction, and maintenance of 

submarines, they use an oversight and certification program analogous to ship 

classification—called Submarine Safety—as a means to help ensure requirements are 

met and a minimum level of safety is achieved. The officials noted the Submarine Safety 

program is a cornerstone of the Navy’s submarine design, construction, and maintenance 

practices and provides the basis for certification of every submarine. 

12The Military Sealift Command is largely comprised of civilian staff and mariners. Since 

1960, Military Sealift Command-operated ships have obtained and maintained commercial 

ship classification certificates issued by ABS. Section 3316 of title 46 of the U.S. code (as 

amended), designates ABS as the agency for ship classification and related functions for 

U.S. Government-owned vessels.

13American Bureau of Shipping, The ABS Guide for Building and Classing Naval Vessels

(2004).
 

Page 16 GAO-14-122 Navy Shipbuilding

the applicable classification rule sets. Upon completion of all 

requirements, ABS issues a classification certificate.

Recognizing that it has experienced significant quality problems with 

several ship classes, the Navy has focused on reducing the number of 

serious deficiencies, particularly “starred” deficiencies, which require a 

waiver from the Chief of Naval Operations to defer correction until after 

delivery. The number of uncorrected deficiencies at delivery, including 

starred deficiencies, has generally dropped for ships delivered over the 

past few years due, at least in part, to the Back to Basics quality 

improvement initiative. Even so, the Navy still accepts some ships with 

large numbers of open deficiencies. Navy policy states that ships are to 

be delivered based on acceptance trials and satisfactory correction or 

resolution of deficiencies. Instead, correction of deficiencies is often 

deferred until after the Navy accepts delivery of the ship, which can 

interfere with post-delivery activities. Further, one product of the Back to 

Basics initiative, a quality management provision for inclusion in Navy 

shipbuilding contracts, has not been implemented on any Navy 

shipbuilding contract.

The Navy has reduced the total number of uncorrected starred 

deficiencies at delivery on both established and newer ship classes for 

which multiple ships have been delivered. It is up to INSURV inspectors 

to categorize deficiencies identified by severity during acceptance trials. 

Because there can be ambiguity regarding who is responsible for 

correcting the deficiencies, the program office, SUPSHIP, and the

shipbuilder collectively determine whether the government or the 

shipbuilding contractor is responsible. Deficiencies that the government is 

responsible for correcting can include, among other things, problems 

requiring a change to the ship design or ship specification, or equipment 

that the government is responsible for providing. For example, during the 

acceptance trial of LCS 2, the rescue boat could not be properly deployed 

and INSURV inspectors categorized the problem as a starred deficiency. 

It was subsequently determined that, as designed, the rescue boat 

system did not have the ability to meet requirements and that the Navy 

would assume responsibility for the corrective work. Figures 4 through 7 

show the open number of starred deficiencies at delivery for the LPD 17, 

DDG 51, T-AKE, and LCS ship classes during the 2006 through 2012 

The Navy Has 

Reduced Deficiencies 

at Delivery but Still 

Accepts Some Ships 

with Numerous 

Construction 

Deficiencies 

The Navy Has Reduced the 

Number of Starred 

Deficiencies at Delivery
 

Page 17 GAO-14-122 Navy Shipbuilding

time frame.

14

Figure 4: Open Starred Deficiencies at Delivery for LPD 17 Ship Class

These are the classes of ships that had multiple vessels 

delivered in this time frame. The figures also show when the Back to 

Basics initiative began.

Note: LPD 17 was delivered to the Navy in 2005, but is included in our analysis as this was the lead 

ship for the San Antonio class.

 

14Since 2006, the Virginia class submarine program has also delivered multiple vessels. 

According to the Navy, the Virginia class program is considered to be one of the Navy’s 

most well run programs, but we did not compare it to the surface ships due to differences 

in the delivery process.
 

Page 18 GAO-14-122 Navy Shipbuilding

Figure 5: Open Starred Deficiencies at Delivery for DDG 51 Ship Class

Note: DDG 51 class ships are built at two Navy contractor shipyards in Bath, Maine and Pascagoula, 

Mississippi. Ships are presented in chronological order based on the date of delivery to the Navy.
 

Page 19 GAO-14-122 Navy Shipbuilding

Figure 6: Open Starred Deficiencies at Delivery for T-AKE Ship Class

Note: The database used for this analysis did not contain information on T-AKE 1 through T-AKE 6, 

delivered between 2006 and 2008. Data obtained for T-AKE 12 indicated that almost all of the 

deficiencies were opened and closed on the same day following the ship’s delivery and, as such, data 

for that ship were deemed not sufficiently reliable for the purpose of this analysis.
 

Page 20 GAO-14-122 Navy Shipbuilding

Figure 7: Open Starred Deficiencies at Delivery for LCS Ship Class

Note: Odd numbered LCS class ships (Freedom variant) are built at a shipyard in Marinette, 

Wisconsin, while even numbered ships (Independence variant) are built at a shipyard in Mobile, 

Alabama.

In addition to starred deficiencies, total deficiencies have declined for 

several ship classes. Notably, the last ship of the T-AKE class, T-AKE 14, 

was delivered in 2012 with no deficiencies that the shipbuilder was 

responsible for correcting. Uncorrected deficiencies were also kept to a 

minimum on the recently delivered Joint High Speed Vessel and Mobile 

Landing Platform—both based on commercial designs and operated by 

the Military Sealift Command. The first Joint High Speed Vessel, an 

intratheater troop and cargo transport ship, was delivered in December 

2012 with only 54 uncorrected deficiencies, of which 6 were categorized 

as Part I deficiencies. The first Mobile Landing Platform, which will 

provide at-sea cargo and equipment transfers, was delivered in May 2013 

with only three uncorrected shipbuilder-responsible deficiencies, 

according to the Navy. These had not been resolved prior to delivery 

because the shipbuilder was waiting for parts to correct the items. 
 

Page 21 GAO-14-122 Navy Shipbuilding

Figure 8 shows the number of open deficiencies at the time of delivery for 

the T-AKE ship class. The figure also shows when the Back to Basics 

initiative began. In addition, appendix III provides additional information 

on the numbers and types of deficiencies at different points in time for TAKE class ships delivered to the Navy from 2009 through 2012.

Figure 8: Non-Starred Deficiencies at Time of Delivery for T-AKE Ship Class

Notes:

The database used for this analysis did not contain information on T-AKE 1 through T-AKE 6, 

delivered between 2006 and 2008. Data obtained for T-AKE 12 indicated that almost all of the 

deficiencies were opened and closed on the same day following the ship’s delivery and as such, data 

for that ship were deemed not sufficiently reliable for the purpose of this analysis. In some instances, 

similar types of deficiencies were consolidated into a single deficiency prior to ship delivery. The data 

above contains deficiencies where it was subsequently determined no further corrective action would 

be taken.

It should be noted that a confluence of several factors led to improved 

quality for the T-AKE and Mobile Landing Platform ship classes. The 

quality of ships generally improves as ship classes mature. Production 

efficiencies are gained from process improvements and incorporation of 

lessons learned into the build strategy. During early production of the 

T-AKE ship class, the shipbuilder initiated shipyard-wide production 

improvements and other efficiencies resulting, in part, from the 
 

Page 22 GAO-14-122 Navy Shipbuilding

shipbuilder’s partnership with a leading international commercial 

shipbuilder. With the improvement in quality, the T-AKE program moved 

to a contract type which transfers more of the cost risk resulting from any 

quality problems to the shipbuilder. Specifically, for T-AKE 10 through TAKE 14 the Navy transitioned from a fixed-priced-incentive contract to a 

firm-fixed-price contract. The shipbuilder for the Mobile Landing Platform 

attributed the delivery of a nearly defect-free ship to its focus on ensuring 

that all design engineering efforts and production planning activities were 

fully completed prior to the start of the lead ship’s construction. 

Shipbuilder representatives stated that this was a key factor in keeping 

rework rates for quality problems low.

Even with the drop in the number of starred deficiencies, the Navy has 

continued to accept delivery of some ships with large numbers of 

uncorrected deficiencies. For example, LPD 22, which was delivered 

without any starred deficiencies and was cited by Navy officials as a 

turning point for the LPD 17 ship class, had over 3,300 deficiencies that 

the contractor was responsible for correcting at delivery. Subsequent LPD 

ships, LPD 23 and 24, both delivered in 2012, had fewer but still sizeable 

numbers of uncorrected deficiencies. On these ships, examples of 

uncorrected Part II deficiencies that were the shipbuilder’s responsibility 

when delivered included pipe hangers that were insufficiently spaced to 

support the weight intended or that did not meet the Navy’s requirements; 

fire suppression sprinklers not providing adequate coverage due to 

obstructions and interference from pipes and ductwork; and inability to 

fully extend a crane boom due to overhead obstructions on LPD 24. While 

Part II deficiencies are considered to be not as severe as Part I 

deficiencies, these deficiencies nonetheless can require a fair amount of 

shipbuilder effort to remedy.

Figure 9 shows the total number of open non-starred deficiencies (Part I, 

Part II, and Part III) at the time of delivery for the LPD 17 ship class. The 

figure also shows when the Back to Basics initiative began. Appendix IV 

provides additional information on the numbers and types of deficiencies 

at different points in time for LPD class ships delivered to the Navy since 

2009, when the Back to Basics initiative began.

Numbers of Other 

Deficiencies at Delivery 

Remains Substantial 
 

Page 23 GAO-14-122 Navy Shipbuilding

Figure 9: Non-Starred Deficiencies at Time of Delivery for LPD 17 Ship Class

Notes:

LPD 17 was delivered to the Navy in 2005, but is included in our analysis as this was the lead ship for 

the San Antonio class.

Deficiencies closed up to 7 days after date of delivery are treated as being closed at delivery to 

account for potential lags in data entry.

As another example, on LCS 3, uncorrected Part II deficiencies that were 

the shipbuilder’s responsibility at the time of delivery included use of 

incorrect weld-filler material on pipe joints associated with the ship’s water 

jets; instances where cabling was insufficiently supported, was bent, or 

had insufficient banding; and valves that were inaccessible due to 

obstructions.

Figure 10 summarizes the number of open non-starred deficiencies (Part 

I, Part II, and Part III) at the time of delivery for the LCS ship class. The 

figure also shows when the Back to Basics initiative began. In addition, 

appendix V provides additional information on the numbers and types of 

deficiencies at different points in time for the LCS ship class.
 

Page 24 GAO-14-122 Navy Shipbuilding

Figure 10: Non-Starred Deficiencies at Time of Delivery for LCS Ship Class

Notes:

Odd numbered LCS ships (Freedom variant) are built at a Navy contractor shipyard in Marinette, 

Wisconsin, while even numbered ships (Independence variant) are built at a Navy contractor shipyard 

in Mobile, Alabama.

Deficiencies closed up to 7 days after date of delivery are treated as being closed at delivery to 

account for potential lags in data entry.

In the above examples for the LPD and LCS ship classes, many of the 

deficiencies were first identified by SUPSHIP inspectors either prior to or 

during the builders’ sea trials but were not corrected before delivery.

In addition, correcting very significant deficiencies (Part I) can require 

various levels of effort. For example, INSURV designated a broken 

window in the helicopter control station as a Part I deficiency on DDG 

112. This may be relatively easy to fix, but is labeled a Part I deficiency 

because, according to deficiency documentation, until this issue is 

corrected the aviation facilities on the vessel cannot be fully certified, 

limiting operations. However, other issues could be more complex to 

correct. On DDG 108, for example, INSURV inspectors identified 

locations within the ship where there was insufficient corrosion protection, 

which if left uncorrected could result in accelerated corrosion as it did on 
 

Page 25 GAO-14-122 Navy Shipbuilding

at least one previous hull. Additional corrosion protection features were 

necessary to correct the issue, resulting in changes to the ship 

specification for follow-on hulls. Figure 11 summarizes the number of 

open non-starred deficiencies (Part I, Part II, and Part III) at the time of 

delivery for the DDG 51 ship class. The figure also shows when the Back 

to Basics initiative began. Appendix VI provides additional information on 

the numbers and types of deficiencies at different points in time for those 

DDG 51 class ships delivered to the Navy since 2009, when the Back to 

Basics initiative began.

Figure 11: Non-Starred Deficiencies at Time of Delivery for DDG 51 Ship Class

Notes:

DDG 51 class ships are built at two Navy contractor shipyards in Bath, Maine and Pascagoula, 

Mississippi. Ships are presented in chronological order based on the date delivered to the Navy.

Deficiencies closed up to 7 days after date of delivery are treated as being closed at delivery to 

account for potential lags in data entry.

While our analysis indicates that deficiencies have generally been 

decreasing where there are multiple ships in a class, we found instances 
 

Page 26 GAO-14-122 Navy Shipbuilding

where ships built individually or infrequently experienced difficulties in 

meeting the Navy’s requirements prior to being delivered to the Navy. 

These include the Wasp class amphibious assault ship (LHD 8), the 

Nimitz class aircraft carrier (CVN 77), and a missile instrumentation ship 

(T-AGM 25).

• The Navy accepted delivery of LHD 8 in April 2009 with over 12,000 

uncorrected deficiencies which were determined to be the 

shipbuilder’s responsibility. Of these, almost 70 percent were for items 

SUPSHIP inspectors had identified before or during the builder’s sea 

trials, including numerous deficiencies related to the ship’s cabling 

and wiring. According to representatives of the shipbuilder, following 

delivery the shipbuilder undertook an intensive effort lasting several 

months to assess the condition of the ship’s cabling, as it was unclear 

which cables and wires were properly routed. As a result of the costs 

incurred by the shipbuilder for this effort, the builder completely 

revised and modernized the approach used to install cables and wires 

on subsequent ships built at the shipyard.

• According to the shipbuilder’s list of incomplete work items and 

deficiencies, the Navy took delivery of CVN 77 in May 2009, with 

about 7 percent of the ship’s compartments unfinished; over 8,000 

uncorrected deficiencies that had been identified prior to or during sea 

trials; and approximately 3,900 generally minor deficiencies (such as 

missing cable tags and electrical outlets) that were identified by the 

crew during its inspection. In addition, INSURV inspectors noted 

during CNV 77’s acceptance trial that because the ship was not fully 

primed and painted, longer-term cost and maintenance implications 

needed to be addressed, as corrosion developed in the unfinished 

spaces and machinery.

• During the May 2011 acceptance trial for T-AGM 25, INSURV 

inspectors recommended that the Navy not take delivery of the ship 

until an additional acceptance trial was conducted because almost 

none of the major systems on the vessel were in satisfactory 

condition, and several were incomplete or inoperable. The inspectors 

also noted that most of the deficiencies they cited were previously 

identified during builder’s trials but had not been properly corrected 

and retested. In the months following, the shipbuilder conducted an 

additional builder’s trial to demonstrate some key components along 

with INSURV’s second acceptance trial. At the time of delivery in 

January 2012, there were 67 unresolved deficiencies from sea trials 

which the shipbuilding contractor was responsible for correcting, and 

about 600 additional items identified by the Navy requiring correction 
 

Page 27 GAO-14-122 Navy Shipbuilding

by the builder, including improperly secured and supported cables, 

damaged paint, missing safety equipment, and loose tiles.

In these cases, the Navy gave priority to programmatic goals and 

determined it was in the best interest of the Navy to proceed with key 

milestones despite a large volume of uncorrected deficiencies or 

incomplete work. According to Navy officials, the Navy may make such 

determinations based on its strategic needs or additional costs that may 

be incurred by not proceeding with key milestones. For example, the LHD 

8 program office took delivery of the ship as it was over a year and half 

behind schedule, primarily due to lingering effects from Hurricane Katrina, 

a shipyard-wide strike, and delays completing the ship’s machinery 

control system. With CVN 77, SUPSHIP and program office officials 

stated it was necessary to take delivery of the ship in its unfinished 

condition so that it could periodically participate in training missions while 

the remaining work was being completed. Lastly, program officials 

decided to proceed with acceptance trials for T-AGM 25 to meet 

scheduling constraints associated with installation of the ship’s mission 

package at another location, which could only be accomplished after 

taking delivery of the ship. In addition, SUPSHIP officials noted that in 

some instances, such as with T-AGM 25, the decision was made to 

proceed with sea trials in an effort to reveal additional problems with the 

ship that may not have been known at the time.

Deficiencies identified by SUPSHIP and INSURV, if not sufficiently 

corrected, may link to problems later when the ship is in operation. In 

some instances, issues identified by SUPSHIP’s quality inspectors during 

construction were closed prior to delivery—indicating the builder had 

satisfactorily addressed the problems—but the root causes of the 

problems were not fully resolved. For example, during the construction of 

DDG 107 issues with welding were identified in the normal course of 

SUPSHP’s quality inspections. Specifically, SUPSHIP inspectors 

identified weld defects on the ship’s mast and issued a request for 

corrective action to the shipbuilder. The action was closed, indicating that 

the builder had resolved the identified problems. However, during a 

routine training exercise in February 2011, a sub-section of the ship’s 

mast failed when the welds could no longer support the structure. 

According to Navy investigators, it is likely that the section of the mast 

would have fallen onto the ship or into the water, but cables prevented it 

from falling. Although the section of the mast that failed was not at the 

same location where defective welds were identified by SUPSHIP, a Navy 

investigation into the issue identified several causes of the failure, 

Deficiencies May Persist into 

Operations
 

Page 28 GAO-14-122 Navy Shipbuilding

including inadequate quality assurance oversight by the shipbuilder and 

poor workmanship during the construction process.

In addition, deficiencies can also combine to form larger issues. Quality 

problems that stem from deficiencies are often complex and can manifest 

long after the error occurred that led to the problem. Navy documents 

addressing quality concerns state that hull, mechanical, and electrical 

issues are often the result of one or more of the following causes:

• Construction and workmanship deficiencies, such as weld defects or 

inadequate painting;

• Design errors, such as refueling at sea systems that cannot 

accommodate necessary fuel offloading rates; and

• Supplier and subcontractor issues, such as counterfeit parts and subsystems that do not work properly.

For example, a gas turbine engine on LCS 1 was ruined and had to be 

replaced because it was flooded with sea water. The Navy determined 

that this occurred because (1) the welds for the doors and water 

separators were not flush, creating gaps that allowed water to pass 

through the doors (a workmanship issue); (2) there were gaps in the 

sealing surfaces of the water separator that also allowed water to 

penetrate (a design issue); and (3) a key filter became clogged because it 

was not replaced in a timely manner (a maintenance issue).

Figure 12 catalogues select quality problems for a number of ships 

related to hull, mechanical, and electrical workmanship that persisted 

following delivery of the vessels. To generate this list, we asked Navy 

officials from many different departments, including program offices, 

maintenance units, and ship operators, to identify problems facing the 

various ship classes built in the last eight years.
a

Certain low-dollar, fixed-price contracts are closed using a more simplified process.

Page 29 GAO-14-122 Navy Shipbuilding

Figure 12: Shipbuilding Issues

Source: GAO analysis of Navy data (data and images).

LPD 17 – 24

Amphibious Transport Dock Class

LCS 2

USS Independence

Littoral Combat Ship Class 

LHD 8

USS Makin Island, Wasp – Class 

Amphibious Assault Ship 

Quality problems have 

affected the basic construction 

of all classes of Navy ships 

delivered in the last 8 

years—from 2004 to 2012. 

Basic construction includes all 

aspects of constructing the 

ship’s main structure (hull), 

mechanical and electrical 

systems, and primarily 

consists of welding blocks of 

steel and pipes, outfitting the 

ship with major systems (such 

as the propulsion system), and 

wiring the ship with various 

types of cables. This following 

graphic illustrates some of 

these quality issues.

LCS 1

USS Freedom

Littoral Combat Ship Class 

DDG 51

USS Arleigh Burke Guided Missile 

Destroyer Ship Class 

SSN 774

USS Virginia –

Class Fast Attack Submarines 

T-AGM 25

USNS Howard O. Lorenzen

Missile Instrumentation Ship 

T-AKE

USNS Lewis and Clark Dry Cargo 

and Ammunition Ship Class 

CVN 77

USS George H.W. Bush, Nimitz –

Class Aircraft Carrier 

Interactive Graphic Click on an image to see more detailed information about each ship. For print version, please see Appendix VII.
 

Page 30 GAO-14-122 Navy Shipbuilding

Policy issued by the Office of the Chief of Naval Operations (Navy 

Instruction 4700.8J, Trials, Acceptance, Commissioning, Fitting Out, 

Shakedown, and Post Shakedown Availability of U.S. Naval Ships 

Undergoing Construction or Conversion) states the following:

• For new construction ships, all contractual and governmental 

responsibilities should be resolved prior to delivery, except for crew 

certification, outfitting, or special Navy range requirements which 

cannot be met until after delivery.

• Delivery of the ship is based on acceptance trials and satisfactory 

correction or resolution of deficiencies, and acceptance trials shall be 

conducted when all work, including the correction of significant known 

deficiencies, has been completed.

• In many cases it may be prudent to defer work until the post-delivery 

period before the vessel is transferred to the fleet, for example for 

financial or workload reasons.

In addition, the Navy’s fixed-price shipbuilding contracts that we reviewed 

included the Navy’s Delivery of Completed Vessel clause, which requires 

the shipbuilder, before the ship is delivered to the Navy, to satisfactorily 

correct all contractor responsible deficiencies as necessary to avoid an 

adverse effect on the operational capability of the vessel.15

Different units in the Navy disagree over when ships should be free from 

deficiencies. The Office of the Chief of Naval Operations, the authors of 

the policy, state that the policy is to accept delivery of a vessel from the 

shipbuilder that is free of deficiencies, especially all contractorresponsible deficiencies. However, program office and SUPSHIP officials, 

as well as officials from other Navy organizations, stated that it is 

standard practice for the Navy to accept delivery of a ship with numerous 

unresolved deficiencies and/or incomplete work. Navy program officials 

point to the part of the policy that states that the vessel should be fully 

mission capable by the Obligation and Work Limiting Date—the time full 

financial responsibility for the ship is transferred to the operational fleet—

 

15The Delivery on Completed Vessel clause also requires that prior to commencing 

acceptance trials the contractor has: (1) satisfactorily carried out builder’s trials for which 

the contractor is responsible, (2) corrected all shipbuilder-responsible deficiencies 

discovered before completion of the builder’s sea trials, unless otherwise agreed to by the 

contracting officer in writing; and, (3) corrected all shipbuilder-responsible deficiencies 

discovered after completion of the builder’s sea trials which are determined by the 

contracting officer to be necessary to avoid an adverse effect on the operational capability 

of the ship. 

Accepting a Vessel with 

Deficiencies Is Common, 

and Varying 

Interpretations of Policy 

Dictate Practice
 

Page 31 GAO-14-122 Navy Shipbuilding

and this is their quality goal. Thus, the Navy has routinely deferred 

correcting deficiencies with the intention of correcting these items during 

the post-delivery period, as shown in appendixes III through VI.16

Further, while some Navy officials told us that transferring problems to the 

fleet is rare, the transfer of major problems to the fleet in varying degrees 

of severity occurred on LPD 17-21, LHD 8, and DDG 103, requiring the 

use of operations and maintenance funds to correct the defects. Navy 

operations officials told us that following the problems with LPD 17 and 

LPD 18 that were transferred to the fleet, the fleet has become more 

involved in ensuring that it receives a quality vessel. They noted that the 

fleet now has the ability to provide input at key points during the 

acquisition process on whether identified problems on a vessel have been 

adequately addressed.

In fact, 

for some, such as those in the DDG 51 class, the bulk of deficiencies are 

addressed during the first four months following delivery to the Navy 

during the final outfitting period. This is the time when the crew boards the 

ship and begins testing and training prior to the ship being deployed on a 

mission. Several NAVSEA officials stated that addressing deficiencies 

during the post-delivery period can interfere with crew training, final 

outfitting, and testing of the vessel while also affecting the quality of the 

work being performed.

In 2007, recognizing the widespread quality problems in new construction 

ships, the Commander of NAVSEA began to examine the quantity of 

SUPSHIP’s quality assurance inspectors in a few key locations to 

determine what resources were needed to improve quality. Following this 

workforce assessment, between fiscal years 2009 and 2012, the Navy 

hired new staff and reallocated funding for engineering, acquisition 

management, and quality assurance personnel at those SUPSHIP 

commands with the greatest risks to quality and in order to keep up with 

the growth of shipbuilding programs.

In 2009, the Back to Basics effort was initiated. This effort identified 

several quality assurance related goals and developed a means to help 

SUPSHIP better communicate to the program offices the role of quality 

 

16Appendixes III-VI provide data on the closing of deficiencies following delivery for 

selected surface ship classes where multiple ships were delivered to the Navy.

Navy Has Implemented 

Some, but Not All, Quality 

Improvement Measures
 

Page 32 GAO-14-122 Navy Shipbuilding

assurance and the purpose of quality oversight. In addition, NAVSEA 

standardized many of the operating procedures across all SUPSHIP 

locations. Another focus of Back to Basics was improving SUPSHIP’s 

oversight of critical hull, mechanical, and electrical shipbuilding processes 

such as welding, painting, and cabling by standardizing and improving its 

use of metrics to assess shipbuilder performance in these areas. For 

example, on a quarterly basis, the SUPSHIP commands report to 

NAVSEA leadership on the extent to which the shipbuilders are meeting 

SUPSHIP’s quality goals as compared with previous periods. These 

quarterly reports provide NAVSEA leadership with insight into the reasons 

behind any increases in quality problems.

The Back to Basics initiative prompted at least two SUPSHIP locations to 

use a process called “pulse audits” where SUPSHIP and shipbuilder 

quality inspectors conduct an inspection together to ensure that their 

inspections are consistent. Also, some SUPSHIP locations have regular 

meetings with quality inspectors from the shipbuilder to compare quality 

inspection results and metrics, and discuss any discrepancies between 

the results of their inspections. As a result, SUPSHIP and shipbuilder 

officials reported they now have a greater understanding of each other’s 

quality assurance processes.

In addition, in June 2010, the Back to Basics team developed a quality 

performance standard that set forth common quality requirements to be 

included in shipbuilding contracts, which was subsequently published as 

a NAVSEA technical publication. The Quality Performance Standard for 

Construction of Naval Vessels provides standard contract language that, 

among other things, would require shipbuilders to

• develop and submit a quality assurance plan for the government’s 

approval;

• conduct a review to identify special controls, processes, equipment, 

and skills required for assuring product quality;

• ensure that drawings are reviewed for adequacy and completeness 

before use;

• have a quality system that ensures that work is inspected and/or 

tested at points necessary to ensure conformance with contract 

requirements;

• respond to corrective action requests within 21 days (7 days for safety 

issues) and indicate when corrective action will be completed;

• maintain and use cost data on prevention and detection of defects 

and failure costs (such as scrap, rework, and repairs);
 

Page 33 GAO-14-122 Navy Shipbuilding

• provide the government electronic access to quality, accuracy control, 

and manufacturing process data; and

• use results-oriented indicators to demonstrate quality program 

effectiveness.

Although the standard was developed in 2010, according to officials who 

wrote it, as of September 2013 none of the Navy’s shipbuilding programs 

had incorporated this quality performance standard into their shipbuilding 

contracts. Further, in a May 2013 meeting, senior NAVSEA leadership 

told us they were unaware that a quality performance standard had been 

developed, noting that quality clauses are already included in the Navy’s 

shipbuilding contracts. According to officials from SUPSHIP and the 

SUPSHIP Management Group, the quality standard was developed 

because of inconsistencies in quality requirements included in 

shipbuilding contracts that decreased the Navy’s ability to effectively 

conduct oversight. For example, we reviewed two fixed-price-incentive 

shipbuilding contracts awarded in fiscal year 2011 that contain very 

different quality requirements. On one contract for a relatively mature ship 

class, the quality clause includes production process control, data 

sharing, and the use of results-oriented metrics to demonstrate quality 

program effectiveness. On another contract for a newer ship class, the 

quality clause simply requires that the shipbuilder develop, implement, 

and maintain a quality assurance plan covering certain aspects of 

shipbuilding.

Further, SUPSHIP officials cited one recent contract that did not include 

provisions for SUPSHIP to review the shipbuilder’s work procedures. As a 

result, the builder was reluctant to provide this information as it was not 

contractually required, limiting SUPSHIP’s ability to discover potential 

problems. SUPSHIP officials noted that, under current contracts, the 

range of data provided may not be sufficient for them to do their work. For 

example, officials noted that one fixed-price-incentive contract stated that 

“processes or indicators (internal design changes, production rework, 

etc.) to be monitored and reported shall be agreed to by the Program 

Office and shall be identified in the management plan(s);” without going 

into any additional detail about the specific types of data or the frequency 

with which data was to be provided.

Views regarding the success of Back to Basics are mixed. NAVSEA 

leadership views it as a success, noting that maintaining the 

improvements made over the last few years will be critical as budgets 

shrink and the shipbuilding portfolio shifts into more steady-state 

production. They point to the LPD 17 and T-AKE programs as evidence of 
 

Page 34 GAO-14-122 Navy Shipbuilding

the benefits resulting from the quality assurance staffing increases. 

However, others within the Navy believe that quality improvements on 

some shipbuilding programs, such as the T-AKE program, were largely 

independent of the initiative.

The environment in which leading commercial ship buyers and builders 

operate differs in substantial ways from the Navy’s. Key differences 

include the level of competition, different incentives at play, and the timing 

of ship deliveries to the end user. Nevertheless, some commercial 

practices supporting delivery of ships with a minimum number of 

deficiencies may be useful for the Navy. These practices include

• a focus on resolving deficiencies before ship delivery,

• contracting approaches that place the cost risk associated with 

addressing quality problems on the shipbuilder and incentivize prompt 

resolution of problems, and

• an oversight process with clear lines of accountability and an 

emphasis on observing in-process work.

The commercial shipyards and ship buyers we visited build and buy ships 

that are highly complex and densely outfitted. These ships include floating 

production storage and offloading (FPSO) vessels, which collect, process, 

and store oil from undersea oil fields; large cruise ships, some of which 

are comparable to the size of an aircraft carrier and can accommodate 

over 5,000 passengers; liquefied natural gas carriers; and offshore drilling 

ships, which in some instances can sit unanchored and drill for oil in 

water depths of over 10,000 feet while maintaining a fixed position. 

Construction can take up to three years at a cost ranging from about $600 

million for a drill ship to well over $1 billion for a cruise ship or FPSO. In 

many cases, these ships incorporate technological advances that are vital 

to improving business operations. For example, for enhancing operational 

and commercial efficiencies, the new generation liquefied natural gas 

carriers developed a range of techniques from reliquefaction of the boil off 

gas to its utilization as fuel for engines for propulsion. Key characteristics 

of selected commercial ships and offshore structures included in our 

review are presented in appendix VIII.

Commercial shipbuilders, particularly those in the oil and gas industry, 

operate in a robust, competitive environment, as opposed to the U.S. 

Navy’s limited shipbuilding industrial base, where sole source contracts 

may be awarded in order to sustain workloads and the solvency of the 

Commercial Firms 

Resolve Quality 

Deficiencies before 

Delivery, with Some 

Practices Potentially 

Informative for Navy 

in Spite of Different 

Environment 

Environment and Key 

Incentives Differ between 

Commercial and Navy 

Shipbuilding 
 

Page 35 GAO-14-122 Navy Shipbuilding

companies involved. This environment provides commercial buyers with 

additional leverage to expect quality at delivery, as they can go elsewhere 

if they are not satisfied with the end product. One oil and gas company 

reported that there are as many as a dozen shipbuilders from which they 

can solicit proposals at any one time. As a result, commercial shipbuilders 

put a premium on reputation. They do not want to risk their credibility with 

buyers if the ship is not delivered by the contracted delivery date with the 

buyer’s expected level of quality. These factors create additional pressure 

on the shipbuilder to ensure that outstanding deficiencies are resolved in 

a timely manner. In contrast, the Navy has fewer choices of shipbuilders 

and has an interest in sustaining these shipbuilders despite shortfalls in 

performance.

In addition, commercial buyers and builders operate in an environment 

where both parties seek to maximize profits. A delay in delivery has 

significant profit impacts to both the buyer and shipbuilder. For example, it 

is common for a drill ship to be leased to an oil and gas company early 

during the ship’s construction process, and both the ship buyer and the 

company leasing the vessel rely on the ship to be at its drill site by the 

contracted date to begin operations. Any delay in meeting this schedule 

can not only cause the ship buyer to lose revenue—which for some drill 

ships can amount to over $600,000 per day—but also may require the 

buyer to pay predetermined sums to the company leasing the drill ship for 

lost work days. Also, newly constructed cruise ships are expected to start 

generating revenue weeks if not days after being delivered. For example, 

Royal Caribbean officials told us that they had a full cruise 3 days after 

taking delivery of the Celebrity Solstice in October 2008. The monetary 

risks faced by the ship buyer for late delivery or acquiring a ship that does 

not meet key performance requirements—such as fuel consumption—are 

also passed along to the shipbuilder in the form of liquidated damages 

that can potentially cost the shipbuilder tens of millions of dollars.17

 

17Liquidated damages are amounts contractually stipulated as a reasonable estimation of 

actual damages to be recovered by one party if the other party breaches. 
 

Page 36 GAO-14-122 Navy Shipbuilding

Throughout the construction process, the ship buyer’s oversight team, the 

shipbuilders’ quality personnel, and classification society personnel 

routinely identify deficiencies such as design errors, supplier and vendor 

quality issues, and problems with workmanship. Commercial ship buyers 

we met with expect that identified problems will be corrected prior to 

delivery of the ship. We found this to be the case for all types of ships 

included in our assessment of commercial practices, whether a lead ship 

(i.e., the first ship built according to a new design) or a ship built from a 

proven design. Unresolved issues that affect the safety, seaworthiness, or 

operability of the ship would be reason for the ship buyer to not accept 

delivery until such items are corrected. For the generally minor 

deficiencies that have not been corrected by the ship’s delivery date, the 

buyer and shipbuilder may enter into a formal agreement outlining 

specific actions that the builder will take to ensure correction of the 

outstanding issues in the prescribed time.

There is a fair amount of subjectivity as to what constitutes a major or 

minor deficiency that largely depends on the ship’s intended use. While 

each ship-buying company may take a slightly different view of what 

constitutes a major or minor deficiency, minor deficiencies are generally 

those items that do not have an effect on the mission, operability, or 

safety of the vessel and are not indicative of problems with the builder’s 

production processes. Major deficiencies can be viewed as problems with 

the shipbuilder’s production processes that limit the builder’s ability to 

meet ship specifications, or those deficiencies that could have an adverse 

effect on the mission, operability, or safety of the vessel if not resolved. 

We found that commercial ship buyer definitions for major and minor 

deficiencies do not necessarily align with the definitions used by the 

Navy. For example, in the cruise industry, where aesthetics and the 

customer experience are critical factors, a major deficiency may be an 

issue such as higher than anticipated engine vibration or elevated noise 

levels. Typical minor deficiencies include cosmetic defects such as 

scratches on windows, paint, and furniture. For oil and gas ships that are 

expected to endure harsh environments, common major outstanding 

deficiencies at the time of delivery could involve equipment that has not 

yet been installed or equipment that requires additional calibration. 

Typical minor deficiencies might include missing signage or technical 

manuals.

A drill ship for Noble Corporation, the Noble Don Taylor, illustrates the 

process for correcting deficiencies leading up to delivery of commercial 

ships. In this case, the shipbuilder reduced the number of corrective 

items, totaling over 15,000 throughout construction, to around 3,800 by 

Leading Commercial Ship 

Buyers Focus on Taking 

Delivery of Ships Meeting 

Quality Expectations
 

Page 37 GAO-14-122 Navy Shipbuilding

the time sea trials were scheduled to occur. At the time of ship delivery, 

the number of unresolved corrective actions was down to just over 59 

items, which the shipbuilder agreed to correct no later than three months 

following the date of delivery. One day following ship delivery, this 

number dropped to 37 items. These items included minor deficiencies 

such as incorrect labels and missing manufacturer documentation for 

equipment, and in some instances, more significant corrective actions 

including replacement of equipment which measures the weight and 

torque of the drill that did not have the correct calibration.

Additional examples depicting the extent to which quality problems 

identified by the ship buyer are resolved prior to key delivery milestones 

are provided in table 1.

Table 1: Unresolved Deficiencies for Select Commercial Ships at Key Delivery Milestones

Prior to sea trials After sea trials At ship delivery

Ship name (type)

Delivery 

date 

Open minor 

deficiencies

Open major 

deficiencies

Open minor 

deficiencies

Open major 

deficiencies

Open minor 

deficiencies

Open major 

deficiencies

Noble Don Taylor

(drill ship)

April 2013 3,803 7 1,839 6 37 22

Seadrill Ltd. West Auriga

(drill ship)

April 2013 387 78 455 105 50 0 

Chevron Big Foot (tension 

leg platform production 

facility – hull structure 

only)

a

December 

2012

436 89 16 26 a a

Ensco DS 6

(drill ship)

January 

2012

~100 0 <100 0 4 0 

Celebrity Cruises, Inc. 

(subsidiary of Royal 

Caribbean Cruises, LTD.) 

Reflection (cruise ship)

October 

2012

9,110 30 8,100 25 680 20

Star Deep Water 

Petroleum, LTD (a 

Chevron-affiliated 

company) Agbami – 

Floating Production, 

Storage and Offloading 

vessel (FPSO)

June 2008 2,051 150 164 10 15 0 

Source: GAO analysis of industry-provided data.

a

This project used a unit rate contract where the shipbuilder is paid a specific rate for performance of 

the work that is proportional to the volume of work needed to complete the project. The contractor 

that is integrating the production facility onto the hull of the platform, rather than the shipyard, will 

address the open deficiencies. Therefore the ship buyer could not provide us with the data.
 

Page 38 GAO-14-122 Navy Shipbuilding

The commercial ships reviewed were delivered with considerably fewer 

defects than is common with Navy ships, even with the recent 

improvements realized by the Navy. With the exception of the Celebrity 

cruise ship where there were a large number of minor (often cosmetic) 

uncorrected deficiencies at the time of delivery, the number of total 

deficiencies ranged from 4 to 59 for the commercial ships reviewed. For 

the Navy, recent T-AKE class ships, the Joint High Speed Vessel, and the 

Mobile Landing Platform were comparable to the numbers of outstanding 

deficiencies found on commercial ships. 

The Navy and commercial ship buyers agree that responsibility for quality 

must be put on the shipbuilders, as they are in the best position to ensure 

quality. However, the commercial buyers we spoke with structure their 

contracts to ensure that the shipbuilder absorbs the cost risks associated 

with quality problems. For example, they require delivery of a ship at an 

expected quality level for a firm-fixed-price and delay a majority of 

payment until the expectation is met. The Navy shares more of the cost 

risk associated with delivery of a quality product with its shipbuilders 

through cost-reimbursement18 and fixed-price-incentive19 contracts. The 

Navy also makes regular progress payments throughout construction so 

that the bulk of payment has already been made by delivery.

 

18The Federal Acquisition Regulation (FAR) authorizes use of a cost reimbursement 

contract when circumstances do not allow the agency to define its requirements 

sufficiently to allow for a fixed-price type of contract or uncertainties involved in contract 

performance do not permit costs to be estimated with sufficient accuracy to use any type

of fixed-price contract. When using this contract type the government pays for all 

allowable incurred costs to the extent prescribed in the contract.

19The FAR authorizes use of fixed-price-incentive contracts when a firm fixed-price 

contract is not suitable; the nature of the supplies or services being acquired and other 

circumstances of the acquisition are such that the contractor’s assumption of a degree of 

cost responsibility will provide a positive profit incentive for effective cost control and 

performance. If the contract also includes incentives on technical performance and/or 

delivery, the performance requirements provide a reasonable opportunity for the 

incentives to have a meaningful impact on the contractor’s management of the work. This 

contract type provides that the government and the contractor generally share costs—

pursuant to a formula—above the target cost and below the ceiling price. 

Commercial Ship Buyers 

Put More Risk on 

Shipbuilders through 

Choice of Contract Type 

and Payment Structure
 

Page 39 GAO-14-122 Navy Shipbuilding

Firm fixed-price contracts used in commercial shipbuilding—even for lead 

ships—put more of the cost risks associated with quality on the 

shipbuilder than cost-reimbursement and fixed-price-incentive contracts 

which are commonly used by the Navy. Under a firm-fixed-price contract, 

the shipbuilder takes on the full cost of any quality problems that result in 

rework. As many quality problems require rework to existing blocks or 

compartments and can thus erode the shipbuilder’s profit that is included 

in the firm-fixed-price, there is a greater incentive to minimize production 

deficiencies throughout construction.

Similar to commercial ship buyers, the Navy has made some limited use 

of firm-fixed-price contracts to purchase ships included in our review, and 

in those cases the contractor has taken on more cost risk associated with 

any quality problems. Of the 11 shipbuilding programs we reviewed, three 

(DDG 51, T-AKE, and T-AGM 25) used firm-fixed-price contracts.20

Under a cost-reimbursement contract, the cost risks associated with poor 

quality remain with the Navy because the government pays for all 

allowable costs of construction, including any rework, although lower 

costs may be incentivized by the use of award or incentive fees. The 

Navy has used cost-reimbursable contracts on lead ships due to 

concerns that the level of uncertainty and risk common on Navy programs 

make fixed-price contracts too costly. For example, one NAVSEA 

directorate stated that some Navy shipbuilding programs would likely be 

deemed unaffordable under a fixed-price contract due to the shipbuilders’ 

need to include in the price the risk of uncertainty associated with new 

construction methods, new technologies, and new designs. However, the 

Navy generally moves more mature ship programs to fixed-price-incentive 

For 

example, starting with the 10th ship in the T-AKE ship class, the Navy 

successfully moved to a firm fixed-price contract for the remaining 5 

ships. Whereas some of the earlier T-AKE ships exceeded the contracted 

target price, the ships constructed under firm-fixed-price contracts 

continued to maintain good quality. T-AGM 25 was purchased using a 

firm-fixed-price contracting arrangement from the outset, but in this case 

the project experienced quality problems and delays. Although the 

shipbuilding project did not perform as expected, the Navy’s exposure to 

cost overruns resulting from quality problems was mitigated.

 

20In late 2011, DDG 108, DDG 109, DDG 111, and DDG 112 transitioned to firm-fixedprice contract line items from fixed-price-incentive contract line items. At the time only 

DDG 112 was still under construction. 

Commercial Ship Buyers Use 

Firm Fixed-Price Contracts to 

Put Cost Risk of Poor Quality 

on the Shipbuilder
 

Page 40 GAO-14-122 Navy Shipbuilding

contracts, and Navy officials have stated that the cost sharing provisions 

in this type of contract incentivize quality. Under a fixed-price-incentive 

type contract, the contract is awarded for a target cost. The Navy and the 

shipbuilder share both cost savings and cost overruns below or above the 

target cost (referred to as the “share line”), pursuant to a formula, until the 

ceiling price is reached. Navy officials have stated that they see this type 

of contract as an incentive to quality because the shipbuilders will receive 

more profit if they construct the ship efficiently and deliver it below the 

target cost. Appendix IX further illustrates how cost risks pertaining to 

quality are allocated under the different contract types.

In the commercial world, ship buyers use payment terms as leverage to 

ensure that the shipbuilder delivers a ship to the expected level of quality. 

Payments are generally made at milestones negotiated with the 

shipbuilder, such as contract signing, steel cutting, and keel laying. The 

bulk of the payment, sometimes 60 to 80 percent, is made only on 

delivery of a ship that meets expected quality and performance levels. 

The buyers we met with alter payment terms based on the quality of the 

shipbuilder and also use the payment terms to incentivize the builder to 

fix any outstanding deficiencies prior to making the last payment. For 

example, one construction manager stated that his company normally 

makes equal payments to shipbuilders at five different milestones, so that

20 percent of the ship cost remains to be paid at delivery, but the 

company would likely increase the percentage of the overall payment 

outstanding at delivery with a lesser quality shipbuilder. Another ship 

buyer said that his company normally pays 60 to 70 percent of contract 

price at delivery, but would not make final payment if the ship had major 

outstanding quality issues. Two other ship buyers told us they make 

milestone payments during construction, but generally retain 5 to 10 

percent of the payment as a means to ensure that the builder addresses 

deficiencies before delivery. Those buyers also said they can retain these 

funds at delivery to ensure prompt resolution of any unresolved 

deficiencies. These practices create a strong financial incentive for the 

builder to quickly complete work and clear any outstanding quality 

defects. One project manager indicated that on two recent shipbuilding 

projects, it was not necessary to withhold any of the payment after taking 

delivery of the vessels because of the small number of deficiencies. 

Of the 11 fixed-price contracts we reviewed (with the exception of TAGM25), the Navy makes periodic payments to its shipbuilders according to 

Commercial Shipbuilding 

Payment Terms Put More 

Pressure on Shipbuilder to 

Deliver Complete Ship at 

Expected Quality Level 
 

Page 41 GAO-14-122 Navy Shipbuilding

the progress made in construction.21

According to Navy contracting officials, they consider potential impacts on 

pricing in developing payment provisions. In the fixed-priced shipbuilding 

contracts we reviewed, we found that the Navy generally retains a 

percentage from each progress payment—anywhere up to 10 percent—

that decreases as the ship is being built. Navy contracting officials told us 

that they will only reduce the retention to the lower percentage once 

outstanding problems have been cleared. The following example from a 

recent shipbuilding contract illustrates this process:

For example, one contract allows the 

shipbuilder to submit payment invoices every two weeks that are based 

on the progress made in construction as long as the billed amount is over 

$5,000. While commercial ship buyers may pay the bulk of payment at 

delivery, this system also requires shipbuilders to finance construction 

and related finance costs, which are ultimately passed on to the ship 

buyer in the contract cost. 

• Up to 25 percent of the ship’s physical completion—5 percent is 

retained from each progress payment;

• 25 to 50 percent of the ship’s physical completion—3 percent is 

retained from each progress payment;

• 50 to 75 percent of the ship’s physical completion—1.5 percent is 

retained from each progress payment; and

• Once 75 percent of the ship’s physical completion has been 

reached—1 percent is retained from each remaining progress 

payment.

At delivery, the Navy retains a minimum amount of the shipbuilder’s 

payment as a performance reserve that ranges from 0.75 to 1.5 percent 

of the ship’s contract value, and will withhold additional funds from the 

shipbuilder’s last invoice or the amount retained during construction if 

there are uncorrected deficiencies or incomplete work. However, the 

Navy may be constrained in terms of how it can incentivize contractors 

since the bulk of payments are made during the course of construction 

rather than at delivery. As it is common for Navy ships to have many 

more deficiencies and incomplete work items at delivery than the 

commercial ships in our review, the amount retained may not sufficiently 

motivate the shipbuilder to correct all deficiencies. Further, there is not 

 

21Payments made during construction of T-AGM 25 were based on the shipbuilder’s 

achievement of certain shipbuilding milestones, such as keel laying. 
 

Page 42 GAO-14-122 Navy Shipbuilding

specific NAVSEA guidance that addresses the extent to which retentions 

should be used as a means to incentivize the shipbuilder to promptly 

resolve outstanding deficiencies and incomplete work items at ship 

delivery. However, standards for internal control in the federal 

government identify the need for documenting policies and procedures to 

ensure appropriate measures are taken to address risk.22

More recently, Navy and SUPSHIP officials stated that in at least three 

instances they have temporarily increased the amount of the retained 

payments in an effort to prompt the shipbuilder to correct persistent 

deficiencies. SUPSHIP officials told us this approach was successful for 

problems they encountered with the LHA 6, DDG 51, and LPD 17 ship 

classes. In the case of LPD 17 class ships, the Navy withheld over $15 

million in progress payments on four ships that were under construction 

until the shipbuilder resolved persistent problems with pipe cleanliness.

Program 

officials stated that for uncorrected deficiencies that are large in scope 

they will typically develop an estimated cost to complete each item. For 

the remaining deficiencies, the officials stated they develop an average 

cost that is based on the estimated cost to complete a selected sample of 

the deficiencies and apply that cost universally across the remaining 

deficiencies. In the case of LHD 8, which was delivered to the Navy in 

April 2009 with over 12,000 outstanding shipbuilder-responsible 

deficiencies, the Navy retained about 2.5 percent of the final estimated 

cost. Navy officials told us that some of these outstanding items are still 

being completed during maintenance periods.

 

22See GAO, Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999).
 

Page 43 GAO-14-122 Navy Shipbuilding

Another mechanism commercial ship buyers use to ensure quality 

assurance is having dedicated, trained inspection teams on site to 

monitor and oversee all aspects of construction. All of the commercial 

ship buyers we met with create clear lines of responsibility for functional 

areas to ensure accountability within their on-site teams, which are 

primarily responsible for quality during construction. Within the on-site 

teams of the commercial buyers we met with, responsibility for a 

functional area such as paint or hull and structure is consolidated under 

one functional area lead who reports to the buyer’s overall project or 

construction manager on-site. The on-site project manager has overall 

responsibility within the buyer’s company to ensure that the shipbuilder 

delivers the ship on time and at the expected level of quality. Quality 

inspectors are integrated within each functional area team. Commercial 

ship buyers told us that their on-site quality inspectors are expected to 

independently identify critical inspection areas during the course of their 

day-to-day inspections. We found that commercial quality inspectors use 

design drawings and ship specifications during their work to ensure that 

the items are built in accordance with the detailed design. Furthermore, 

these inspectors are also responsible for tracking and closing all 

corrective actions they identify during the course of construction and 

ensuring that the corrected work or work processes resolved the identified 

problems. Overall, commercial ship buyers place a high-level of 

responsibility on their inspectors to be able to identify important quality 

issues in their functional area and ensure that the company will take 

delivery of a ship that meets quality standards.

Within the Navy, SUPSHIP quality assurance departments have limited 

authority over the shipbuilder compared to commercial ship buyers’ 

inspectors. SUPSHIP quality assurance teams identify and report defects 

found during their inspections, and can close out the deficiencies once 

the defects are rectified. However, deficiencies that are technical in 

nature, or with which the builder disagrees, are adjudicated by SUPSHIP 

engineering and the ship’s program office and not the quality assurance 

department. For example, SUPSHIP’s engineering department reviews 

and adjudicates technical issues related to design and system 

engineering that quality assurance teams identify during inspections. If 

Commercial and Navy 

Shipbuilding Utilize 

Differing Approaches to 

Foster Accountability and 

Ensure Quality

Commercial Ship Buyer 

Oversight Structure Creates 

Clear Lines of Accountability 

While Navy Oversight Is More 

Diffused 
 

Page 44 GAO-14-122 Navy Shipbuilding

the engineering group finds that a defect is technically acceptable, a 

waiver may be provided indicating that the shipbuilder does not need to 

correct the defect. The ship’s program office is primarily responsible for 

successful delivery of the ship, including responsibility for cost, schedule 

and performance requirements. Program office officials also review 

certain defects identified by the SUPSHIP quality assurance teams and 

make the determination as to whether or not they will be corrected by the 

shipbuilder, provided the defect is technically acceptable.

As shown in figure 13 below, there are major departments within 

SUPSHIP, such as contracting, engineering, and program management

that have delegated responsibilities from the respective NAVSEA level 

directorates or the PEOs and are able to elevate technical risks or 

concerns about the structure of the shipbuilding contract to those that 

have decision-making authority. SUPSHIP quality officials receive policy 

guidance from the NAVSEA Logistics, Maintenance and Industrial 

Operations Directorate (NAVSEA 04), but there is not a quality assurance 

team at the NAVSEA level to which they can raise quality related issues.
 

Page 45 GAO-14-122 Navy Shipbuilding

Figure 13: Simplified Organizational Chart of SUPSHIP Indicating Those Departments Having Delegated Responsibilities

Officials within NAVSEA 04 told us the Navy is formulating plans to 

reorganize the structure of the directorate, and plans include establishing 

a centralized quality team. Although the roles, responsibilities, and 

authorities of the quality team are not yet defined, the officials expect that 

the team would provide support to SUPSHIP quality assurance 
 

Page 46 GAO-14-122 Navy Shipbuilding

departments in helping to ensure that matters related to quality are given 

sufficient attention at the NAVSEA level. Increasing the emphasis on 

quality may help contribute to the goal of delivering ships that are defectfree, or nearly defect-free, as called for in Navy policy and demonstrated 

in commercial shipbuilding.

Prior to construction, the commercial ship buyers and shipbuilders we met 

with negotiate to one common understanding of quality inspections 

through an agreed-upon quality inspection plan.23

Buyer representatives, including on-site teams and headquarter-level 

officials, review the builder’s quality inspection plan and may ask for 

additional inspections and hold points based on ship design, criticality of 

the system, and previous experiences of the buyer. For example, one 

ship buyer reported experiencing significant failure rates during pressure 

testing of piping systems on a drill rig, and decided to incorporate 

additional inspection points at the joints where pipes are welded together 

on future drill ship projects. In another instance, a ship buyer 

representative told us his company solicits input on the quality inspection 

plan from company personnel that operate similar types of vessels, which 

he noted provides valuable information on the types of quality issues 

observed from an operator’s perspective. The quality inspection plan is a 

key tool in ensuring quality as it enables consistency in inspections by 

focusing the ship buyer and builder on the same inspection items using 

the same criteria. Figure 14 further describes actions taken by one 

commercial firm, Chevron’s Project Resources Company, to improve 

quality.

The plan identifies (1) 

all formal inspection points during the construction process; (2) who 

attends and approves the inspections; and (3) criteria on how the 

inspections will be carried out. One ship buyer noted that establishing the 

quality inspection plan in conjunction with the shipbuilder and ensuring 

that all parties agree to, and are aware of, the key drivers that affect 

quality is of the utmost importance in ensuring the ship is built and 

delivered at the expected level of quality. According to company officials, 

the shipbuilder is contractually required to notify the buyer of any formal 

inspection points to provide the buyer an opportunity to inspect a product 

or process at a designated point of production. 

 

23Leading commercial ship buyers and shipbuilders in oil and gas, cruise and shipping 

industries referred to these plans by different terms, such as an inspection and test plan or 

yard quality standard.

Commercial Ship Buyers Align 

Quality Inspections with 

Shipbuilder Plans While Navy 

Has Multiple Inspection Plans, 

Fewer In-Process Inspections
 

Page 47 GAO-14-122 Navy Shipbuilding

Figure 14: Actions Taken by a Commercial Firm to Improve Quality

Inspectors for commercial ship buyers enforce quality requirements, in 

part, by attending all formal inspections, according to almost all of the 

commercial ship buyers in our review (seven of nine companies). For 

example, one ship buyer we met with reported having up to 80 

inspections in a day for the team of about 14 inspectors. These inspectors 

use design drawings and review the ship specification to ensure that the 

compartment or block is built in accordance with requirements.

Along with the formal inspections, commercial ship buyers consistently 

cited “roaming patrols” as central to their oversight process. Inspectors 

regularly patrol the shipyard, where they observe the shipyard’s inprocess work. All of the buyers emphasized the importance of these 

patrols as providing assurance that shipbuilders are adhering to their 

work processes even when a formal inspection is not scheduled. These 

patrols facilitate the early recognition of quality problems, which are 

typically less expensive and time consuming to correct than later in the 

construction process. Some officials told us that these impromptu patrols 

can be particularly effective in yards with more quality issues. The 

percentage of inspectors’ time allocated to these roaming patrols can vary 

depending on the stage of construction—but can exceed 50 percent over 

the course of a ship’s construction—with a greater proportion of time 

allocated during the earlier stages of construction when there are not as 

many formal inspections.
 

Page 48 GAO-14-122 Navy Shipbuilding

In contrast to commercial shipbuilding, where buyer and builder 

inspection activities are aligned through one common inspection plan, 

Navy shipbuilding involves layers of oversight and quality inspections that 

are resource intensive and not necessarily aligned with shipbuilders’ 

inspections. In Navy shipbuilding, NAVSEA officials told us formal 

inspection points that relate to quality are identified in multiple ways 

including Navy technical documents, inspection proposals from the 

shipbuilder, or the ship’s technical specifications. NAVSEA’s engineering 

directorate reviews and approves the shipbuilder’s quality-related test and 

inspection documents. Other formal test and inspection points, such as 

those for equipment and system installations, are contained in separate 

test plans that the shipbuilder develops and SUPSHIP engineering 

reviews. In addition to attending formal inspections, SUPSHIP’s quality 

assurance department independently develops its own surveillance plans, 

and these surveillance plans are revised several times a year.24

Unlike inspectors for commercial ship buyers, SUPSHIP inspectors do not 

attend all formal inspections identified in the shipbuilding contract. 

SUPSHIP quality managers determine which inspections their inspectors 

attend—generally based on priority or potential problem areas—but it is 

understood that inspectors will not attend all call-outs, in part due to 

staffing levels at the SUPSHIP locations. NAVSEA and SUPSHIP officials 

noted that the unpredictability of which inspections will be attended by 

SUPSHIP helps ensure the shipbuilder maintains focus on all aspects of 

production.

SUPSHIP officials described their oversight approach in very different 

terms than commercial ship buyers. SUPSHIP surveillance plans set forth 

goals that focus on collecting numbers of observations. SUPSHIP quality 

assurance teams in the locations we visited stated that they generally 

focus most of their inspection efforts, in terms of observations conducted, 

 

24Nuclear submarines and aircraft carriers are also subject to additional oversight and 

inspection by NAVSEA 08 officials, who are responsible for nuclear propulsion systems. 

Navy submarines are subject to additional specialized inspections through its Submarine 

Safety program. Inspections conducted through this program, as well as audits and 

observations made by NAVSEA’s Nuclear Propulsion Directorate of all shipyard activities, 

can also identify broader quality issues that affect construction. For example, Newport 

News Shipbuilding experienced issues with welders using incorrect filler material on 

Virginia Class Submarines. While Newport News was already working on the issue, audits 

by NAVSEA 08 identified it as a systemic problem, elevating the severity of the problem, 

according to officials. The Navy and the shipbuilder subsequently led a thorough review of 

weld filler materials used in potentially affected vessels.
 

Page 49 GAO-14-122 Navy Shipbuilding

on performing planned inspections identified in shipbuilding contracts and

SUPSHIP surveillance plans, and less effort conducting random 

inspections of in-process work (similar to the roaming patrols used by 

commercial buyers’ inspectors). The main inspection activity carried out 

by SUPSHIP quality inspectors, as measured by the number of 

observations, are product verification inspections. These are inspections 

of end products such as fabricated blocks, installed equipment, and 

completed compartments to ensure that the work conforms to the contract 

specifications. SUPSHIP’s Gulf Coast and Bath locations reported 

spending 64 percent and 60 percent, respectively, of their inspection 

efforts on product verification inspections, while Groton and Newport 

News spent less time—39 percent and 35 percent, respectively.

As part of SUPSHIPs’ surveillance plan for a shipyard, quality inspectors 

also observe work being performed by production workers—work that is 

in process—for compliance with the builders’ procedures and technical 

specifications. Similar to commercial ship buyers, SUPSHIP officials 

stated it is important to identify, and remedy, any potential quality issues 

early in the construction process. Most SUPSHIP locations reported 

spending about 30 percent of their inspection efforts on in-process 

evaluations. These evaluations are planned in advance and may last a 

few hours to several days. SUPSHIP officials have reported that they are 

putting more effort into in-process inspection activities rather than just 

inspecting end products For example, one SUPSHIP location has 

established a goal of having 70 percent of their inspectors’ observations 

related to in-process work. SUPSHIP officials also told us that their 

inspectors conduct some general surveillance or random inspections, but 

it is unclear how much of their effort is spent on these activities as they 

are not recorded as such. 

Also in contrast to commercial shipbuilding practice, not all SUPSHIP 

locations use design drawings while conducting inspections. Instead, 

inspectors use pre-developed checklists and ship technical specifications 

to perform inspections. The use of design drawings during inspections 

helps to ensure that work is being produced in accordance with the 

approved design and that the builder’s workers are using the correct 

version of the design. For example, ABS officials told us that during 

construction of the Littoral Combat Ship, ABS found in a number of 

instances that the production drawings used to build the ship were 

different from the approved design. In some cases the production 

drawings identified different sizes of pipes and flanges, or depicted piping 

arrangements that were not included in the approved design, but such 

issues generally went unnoticed by the SUPSHIP inspectors because 
 

Page 50 GAO-14-122 Navy Shipbuilding

they did not compare the design drawings to the work performed. Quality 

officials at two SUPSHIP locations stated that their inspectors have been 

trained and use the design drawings during inspections, and officials from 

both locations view this as an important tool for ensuring quality.25

Commercial shipbuilders create an environment of accountability for 

quality by implementing systems to track quality problems down to the 

supervisor and individual worker level. Systems used by shipbuilders 

included complex enterprise resource management systems that track 

workers assigned to specific work packages or assignments, as well as 

simple systems such as requiring production workers to sign their work 

(on the compartment itself or related paperwork) with a unique identifier. 

For example, one shipbuilder we visited conducts non-destructive tests 

on welds as dictated in the quality inspection plan developed with the ship 

buyer. Each test record includes information on the welder who 

performed the work and the outcome of the testing. This allows the 

shipbuilder to identify welders producing defective work. Furthermore, the 

shipbuilder uses the test data to rate welder performance across the yard 

as part of its regular performance appraisal system. This same system 

allows the shipbuilder to track performance of supervisors and individual 

workers in terms of producing quality products and minimizing rework.

Officials at one of these SUPSHIP locations said they have long realized 

the benefits of using design drawings during the course of their quality 

inspectors’ work and ensure the inspectors are trained to be able to read 

design drawings. At the other location, officials stated they just recently 

started having their quality inspectors use the design drawings when 

conducting quality inspections, which they attribute as being a good 

practice they observed from ABS.

Most Navy shipbuilding contractors we met with (five of eight shipyards) 

reported that they have historically had difficulties identifying when and 

where in the production process specific quality problems occurred, as 

work was not always tracked at the supervisor or individual worker level. 

This has been a major challenge that they have been trying to address in 

recent years. The shipbuilders agree that quality problems are generally 

the result of a breakdown with the execution of their quality management 

 

25Officials at one other SUPSHIP location indicated their quality inspectors use the 

builder’s production drawings when conducting inspections.

Commercial Shipbuilders’ 

Quality Management Systems 

Enforce Accountability for 

Quality Down to the Worker 

Level 
 

Page 51 GAO-14-122 Navy Shipbuilding

plans rather than problems with the plans themselves.26

In addition, Navy shipbuilding contractors reported that quality at some of 

the shipyards has been affected by high attrition rates, making it difficult 

to maintain a qualified workforce. One shipbuilder representative told us 

that his company is recruiting new technical graduates from other parts of 

the country to fulfill their production staff needs. Another shipbuilder 

representative told us that his company has had quality problems related 

to inexperienced labor. The need to put new staff in place to meet work 

demands puts pressure on the builders to expedite hiring and training. 

According to one shipbuilder, without a rigorous hiring and training 

program, under-qualified workers could be performing the work, leading

to higher incidences of quality issues. Although the four international 

Most of the Navy 

contractor shipyards we visited reported having made progress on this 

front, and shipbuilder quality representatives told us they have been able 

to improve the detection of quality problems earlier in the production 

process and hold front-line supervisors accountable for the quality of the 

work they oversee. For example, quality officials at one shipbuilder told us 

that their quality personnel are now focusing more on conducting inprocess inspections to identify process-related problems occurring within 

a specific trade or work crew, as opposed to inspecting completed work 

products and then trying to locate the specific source of the problem 

within the broader production process. In another example, a shipbuilder 

has created quality advocates within the various tradecrafts that augment 

the builder’s quality assurance department by assisting with day-to-day 

quality activities, such as conducting inspections and providing training, 

as well as representing production workers in yard-wide quality 

improvement efforts. Further, there are signs that builders are starting to 

hold their workforce accountable for quality issues. For example, a quality 

official at one shipyard we visited told us that his inspectors now routinely 

collect quality and defect data at the production supervisor level and 

develop a report of where each supervisor ranks as compared to the peer 

group. These reports are posted throughout the production facilities and 

are visible to all employees. In some rare instances, the quality official 

reported that his company instituted disciplinary actions for supervisors 

that repeatedly allowed poor quality work products to proceed to the next 

stage of production.

 

26We reviewed the quality assurance plans and policies of the eight Navy shipbuilding

contractors and found them to be consistent with ISO 9000 quality management 

standards.
 

Page 52 GAO-14-122 Navy Shipbuilding

commercial shipbuilders we visited did not report having similar labor 

problems, we were told high turnover of the labor force is a problem at 

other commercial yards.

In commercial shipbuilding, classification societies are an integral part of 

design and construction processes. All of the commercial ship buyers we 

met with pointed out that the role of the classification society is to ensure 

their ships are built in accordance with the designated classification 

society’s rules and requirements and that it is the buyers’ responsibility to 

ensure that shipbuilders are building ships in accordance with the buyer’s 

requirements. Further, commercial ship buyers realize that adhering to 

the rules and regulations of a classification society will ensure that a new 

construction ship only meets the quality and safety requirements 

stipulated in the applicable rules. 

During the contracting phase, the designated classification society’s 

applicable rules and regulations, as well as statutory requirements (such 

as those pertaining to safety of life issues or marine environmental 

protection), are generally incorporated into the shipbuilding contract. The 

classification society also plays a role during the design of commercial 

ships, as its engineers review and approve key structural design drawings 

to ensure the design complies with classification society rules. These 

engineers also review and approve key design drawings to verify 

compliance with any applicable statutory requirements, if so authorized by 

the country where the vessel will be registered. The buyers we met with 

had high confidence in the classification society’s engineering review of 

the ship design and viewed this expertise as a core competency. In some 

instances, commercial ship buyers noted that they contract with the 

classification societies for engineering services when developing and 

testing new technologies. For example, officials from Royal Caribbean 

told us they sought technical assistance from the classification society 

Det Norske Veritas during the development and implementation of a pilot 

program that tested advanced engine exhaust cleaning technologies in 

two of its ships.27

 

27The advanced technologies have been installed and tested on Royal Caribbean’s 

Independence of the Seas and Liberty of the Seas cruise ships.

Figure 15 below provides additional detail on how one 

commercial shipbuilding project sought technical assistance from 

classification societies to reduce potential risks to quality.

Classification 

Societies Play a Role 

in Commercial and 

Navy Shipbuilding
 

Page 53 GAO-14-122 Navy Shipbuilding

Figure 15: Example of Classification Society Technical Assistance

Classification society surveyors also have a role in monitoring ship 

construction; however, none of the leading buyers we met with use their 

designated class society as a substitute for their own construction 

oversight and quality assurance processes. Specifically, while 

classification society surveyors assess whether the ship is constructed in 

accordance with prescribed rules and regulations, these rules may not 

take into account the ship buyer’s own technical specification 

requirements. For example, the rules do not address the quality of every 

structure or piece of equipment installed on the ship, such as the ship 

buyer’s mission-related equipment, but rather only what is determined to 

be critical to safe operation of the ship. In addition, class societies 

conduct technical assessments of key parts and equipment. For a wide 

range of materials, parts, and equipment used in the construction of a 

ship, such as main engines, generators, and pumps, it is generally a class 

society requirement that the surveyors attend inspections and witness 

testing conducted at the manufacturing facility prior to the equipment

being shipped to the builder’s shipyard to certify that the items comply 

with the applicable rule requirements.
 

Page 54 GAO-14-122 Navy Shipbuilding

After almost 10 years of ABS participation in the development and 

implementation of the Naval Vessel Rules for the DDG 1000 and LCS 

shipbuilding programs, the Navy, in late 2011, made a decision that as a 

cost savings measure it would no longer seek to obtain ABS class 

certification for surface combatants. ABS’s services were initially 

expected to end in June 2012, but the Navy extended ABS’s involvement 

on construction of LCS 4 for continued marine surveying and inspection 

services through October 2013. The original intent of class certification 

was to transfer what the Navy viewed as higher-volume, lower-risk hull, 

mechanical, and electrical design and construction oversight work to 

ABS, which would allow Navy engineers to focus on higher-risk areas 

including mission systems and military-unique aspects of a ship such as 

combat systems integration. However, according to Navy engineering 

officials, this process was more expensive than originally envisioned.

Of the three surface combatants—LCS 1 through LCS 3—that were 

designed, constructed, and delivered to the Navy under the auspices of 

the Naval Vessel Rules, none of the ships have received ABS class 

certification.28 Prior to the Navy’s determination to no longer contract for 

ABS’s services, unresolved issues precluded issuance of class 

certificates.29

 

28ABS did grant a temporary classification certificate to LCS 1 for the sole purpose of 

transporting the ship from the shipbuilder’s facility to the Port of Norfolk, Virginia. 

According to ABS officials, the classification process 

involved a level of discipline that the Navy found difficult to integrate into 

the design and construction of surface combatants, and in some 

instances the Navy chose to accept design drawings or approve 

completed production work prior to ABS completing its own review and 

approval process. For example, the Naval Vessel Rules require that 

during the design engineering phase of the shipbuilding project computer 

analyses determining the structural integrity of the ship are to be reviewed 

and approved by ABS. However, the Navy allowed the shipbuilder to 

commence construction and deliver the lead ship (LCS 1) and begin 

construction on the second ship (LCS 3) before the ship designers were 

able to submit a structural analysis that met the ABS requirements. The 

analysis identified several areas on the ship’s superstructure that were 

29The Navy’s LCS shipbuilding contracts require that the ships are built in accordance with 

the Naval Vessel Rules and other referenced ABS Rules and Guides as necessary to 

obtain classification. In the absence of ABS, the Navy intends to internally certify those 

aspects of the LCS designs that were not previously approved by the class society or 

were subsequently changed. 

ABS No Longer Provides

Classification Services on 

Navy Surface Combatants 

but Continues to Play a 

Role in Navy Shipbuilding
 

Page 55 GAO-14-122 Navy Shipbuilding

under high stress and could be prone to failure. Program officials 

indicated they operated the ship with knowledge of the high-stress areas 

as a means to field test the strength of the ship. During the initial 

operating period of LCS 1, cracks emerged in a number of the predicted 

locations, requiring repair and additional strengthening of LCS 1 and 

structural modifications during construction of LCS 3.

NAVSEA engineering and SUPSHIP officials indicated that the Navy’s 

decision to cease its arrangement with ABS was also attributed to the 

view that the class society’s role largely duplicated the work being 

performed by SUPSHIP and Navy engineers. These officials were 

confident that SUPSHIP was appropriately positioned in terms of the 

needed skills and resources, as their inspectors were already tasked with 

overseeing the builders’ work to ensure compliance with the 

specifications. In addition, the officials informed us that NAVSEA’s 

engineering directorate is in the process of revising the Naval Vessel 

Rules to take into consideration the departure of ABS from the surface 

combatant shipbuilding programs. SUPSHIP officials told us that a key 

difference between SUPSHIP’s and ABS’s inspection processes is the 

level of discretion the inspectors and surveyors have in determining 

whether or not work is in accordance with the prescribed rules. 

Specifically, it is common in commercial shipbuilding for the classification 

rule set to stipulate that certain work be performed to the satisfaction of 

the attending surveyor, which gives the classification society surveyors 

the flexibility to use their professional judgment as to whether or not 

completed work meets the intent of the rules and is fit for its purpose.30

The Navy plans to continue work with ABS in several areas:

According to SUPSHIP officials, the Navy’s revised rules will remove such 

language so that work performed either meets, or does not meet, the 

applicable technical specifications.

• NAVSEA engineering officials informed us that they will continue to 

contract with ABS on an as-needed basis for design and technical 

assistance services on new construction surface combatants as a way 

 

30Specifically, according to officials, the use of the phrase “to the satisfaction of the 

attending surveyor” in the applicable shipbuilding rule sets is meant to allow the marine 

surveyor the flexibility to use professional judgment as to whether or not a completed work 

item is structurally and mechanically suitable for the intended use and application. An item 

is “fit for service” if it can adequately operate as intended in its as-built condition.
 

Page 56 GAO-14-122 Navy Shipbuilding

to augment the Navy’s skill sets in specialized areas such as 

structural drawing reviews.

• ABS will continue to provide classification services and issue class 

certifications to new construction Navy ships operated by the Military 

Sealift Command.

• Beginning in 2008, Naval Sea Systems Command’s Surface Warfare 

directorate contracted with ABS to perform baseline structural 

assessments of the condition of the surface combatant fleet when 

ships are dry-docked for scheduled maintenance after several years 

of operations.31

More recently, in January 2013, the Navy issued a request for information 

and is seeking input from industry to look into the feasibility of applying 

commercial shipbuilding design and construction practices on its future 

amphibious ships. Specifically, the Navy is seeking input from industry 

regarding the feasibility of building an amphibious ship to ABS’s 

commercial standards while still retaining warship capabilities. One 

approach identified in the request notification is to use commercial 

shipbuilding practices for as much of the ship as possible and apply 

military standards only where necessary.

Under this arrangement, scheduled to continue 

through fiscal year 2016, ABS is conducting marine inspections on 

148 surface ships. Using the information obtained during these 

inspections, ABS is developing models which identify areas of ships 

where there is an increased risk of failure or corrosion, which allows 

the Navy the ability to selectively target its maintenance activities.

The Navy pays hundreds of millions and in many cases billions of dollars 

for ships that warfighters rely on to perform as expected under stressing 

conditions. Yet it routinely accepts ships with numerous uncorrected 

deficiencies. Addressing these deficiencies after delivery can be costly, 

time consuming, and disruptive.

In recent years, Navy leadership has increased its focus on reducing what 

it considers to be the most serious deficiencies (“starred” deficiencies”) at 

the time of ship delivery with some notable successes. However, the 

continued practice of accepting ships with a substantial number of 

deficiencies differs from the commercial practices we observed and can 

 

31The Achieving Service Life Program is a cooperative agreement established in 2008 

between ABS and NAVSEA. The program covers roughly 15-20 ships per year, focusing 

on those ships with dry-docking availabilities.

Conclusions 
 

Page 57 GAO-14-122 Navy Shipbuilding

be attributed to differing interpretations of what Navy policy requires. 

Navy policy officials focus on provisions addressing delivery of the ship to 

the Navy, while program officials focus on the provisions addressing the 

much later point at which full financial responsibility for the ship is 

transferred to the operating fleet. This suggests that clarification and 

consistency in practice is needed. While it is understandable that there 

may be instances where the Navy would accept delivery of a ship with 

some level of uncorrected deficiencies, such actions should be the 

exception rather than the practice. Further, waiting until after delivery to 

correct known deficiencies can interfere with the activities that should be 

taking place during this time—ship outfitting, crew training, additional 

testing, and planned maintenance, as well as other class-wide upgrades. 

This approach is a sharp contrast to that of commercial ship buyers, who 

consider quality to be the focus and expect a ship that is defect-free (or 

nearly so) at delivery.

Navy shipbuilding entails building some of the world’s most 

technologically advanced ships in a limited competitive environment with 

an industrial base that is generally reliant on the Navy to remain in 

business—a landscape that is much different than commercial 

shipbuilding. As such, any quality improvement effort must focus not only 

on the realities of operating in such an environment, but also on ways to 

incentivize the shipbuilder to produce a quality product. The Navy’s Back 

to Basics quality improvement effort was directed at SUPSHIP and 

resulted—albeit in conjunction with other factors—in several positive 

actions that had an influence on improving quality. While the recent 

deliveries of the first Joint High Speed Vessel and Mobile Landing 

Platform represent marked improvements over previous lead ships, 

continued emphasis on quality and maintaining the momentum created by 

the Back to Basics initiative is warranted, given that other recently 

delivered ships had numerous deficiencies.

While the Navy and leading commercial buyers agree that quality is the 

responsibility of the shipbuilder, a key difference is that the Navy makes 

use of cost-reimbursement and fixed-price-incentive type contracts, which 

assign less cost risk to the shipbuilder for quality problems. Leading 

commercial ship buyers have made a business decision that the risks to 

quality belong with the shipbuilder, and that the premium paid to transfer 

this risk is worth the cost of a firm-fixed-price contract. They also make 

greater use of how payments are structured in the shipbuilding contract to 

incentivize the builders to ensure timely correction of deficiencies. Even 

under fixed-price-incentive type contracts, when appropriate, the Navy 

could choose to structure certain payment provisions to incentivize 
 

Page 58 GAO-14-122 Navy Shipbuilding

shipbuilder performance and to enhance contract requirements for 

managing quality. For example, a standardized quality performance 

standard, proposed by SUPSHIP, has not been incorporated in any 

shipbuilding contract.

Commercial shipbuilders also attach considerable importance to having a 

robust oversight process. A few SUPSHIP locations have begun to make 

use of some oversight practices emphasized by commercial ship buyers, 

such as using design drawings, and these practices may be applicable to 

other locations as well. Further, although SUPSHIP quality inspectors 

conduct some level of random inspections, the Navy has not defined the 

role these inspections should play; and we found significant variation in 

their use among SUPSHIP locations.

Commercial ship buyers also place responsibility for delivering a quality 

ship on the site team. Responsibility for quality is more diffused in the 

Navy. Program offices, NAVSEA, SUPSHIP, INSURV, and others all 

have roles, and concerns about schedule, costs, or other strategic needs 

may supersede the focus on quality. While SUPSHIP’s quality assurance 

department is closest to the work being performed, the organization has 

limited authority to make or exert influence on the shipbuilder and on 

decisions made early in the contracting process that could have a direct 

impact on quality. The Navy is formulating plans to establish a quality 

team within the NAVSEA Logistics, Maintenance and Industrial 

Operations Directorate that would promote, in some capacity, attention to 

quality assurance, but the roles, responsibilities, and authorities of the 

team are not yet defined. If the team is given sufficient authorities and 

tasked with elevating SUPSHIP quality assurance concerns throughout 

the acquisition process, this could present an opportunity to address 

some of the issues we identified in our report and emphasize the 

importance of quality when trade-off decisions affecting cost, schedule, 

and quality are at hand.

To improve the construction quality of ships delivered to the Navy, we 

recommend that the Secretary of the Defense direct the Secretary of the 

Navy to take the following five actions:

1. Ensure that, when established, the NAVSEA-level quality team 

provides support and a direct link to directors of SUPSHIP quality 

assurance departments and is tasked with raising concerns within 

NAVSEA about issues affecting or potentially affecting quality 

throughout the acquisition process.

Recommendations for 

Executive Action
 

Page 59 GAO-14-122 Navy Shipbuilding

2. Clarify Navy policy (Navy Instruction 4700.8J) by clearly identifying at 

what point(s) during the acquisition process contractor-responsible 

deficiencies are to be fully corrected and ensure the policy is followed.

3. Provide additional guidance on the quality requirements in 

shipbuilding contracts, including the extent to which the SUPSHIP 

Management Group’s Quality Performance Standard for Construction 

of Naval Vessels should be incorporated.

4. Provide additional guidance on use of payment withholds and 

retentions as a means to incentivize the shipbuilding contractor to 

promptly correct significant or persistent deficiencies and to deliver a 

defect-free, or nearly defect free ship, to the Navy.

5. Assess the benefits and determine whether the following practices, in 

effect at some SUPSHIP locations, would be useful in detecting 

quality problems across all locations:

• use of design drawings during SUPSHIP quality inspections, and

• increased focus on random and in-process inspections compared 

to use of resources for other types of inspections and 

observations.

We provided a draft of this report to DOD for comment. In its response, 

DOD concurred with two of our recommendations and partially concurred 

with three. DOD’s written comments are reproduced in appendix X.

DOD concurred with our first recommendation, and said that it is 

formulating plans to develop a quality team within the Logistics, 

Maintenance and Industrial Operations Directorate (NAVSEA 04). This 

team is envisioned to provide a direct link to SUPSHIP quality assurance 

departments at the shipyards to enhance communication within NAVSEA 

on quality related issues. The quality team would also serve as a 

resource for identifying appropriate quality requirements in shipbuilding 

contracts.

DOD partially concurred with our second recommendation, to clarify Navy 

policy regarding acceptance of ships with quality defects. DOD said that it 

will continue to strive to reduce the number of open deficiencies to zero at 

the time the ship is delivered to the Navy. The Navy will monitor whether 

the trend of fewer deficiencies continues to determine if future revisions to 

the Navy policy instruction are needed. However, we believe the policy 

needs to be clarified, given the lack of consensus about whether

contractor-responsible deficiencies are to be corrected before ships are 

delivered to the Navy. As we note in the report, addressing deficiencies 

Agency Comments 

and Our Evaluation
 

Page 60 GAO-14-122 Navy Shipbuilding

post-delivery undermines the goal of constructing a defect-free or nearly 

defect-free ship and can also interfere with testing and crew training. 

Further, although trends have improved over time, recently delivered 

ships still had a significant number of deficiencies.

DOD partially concurred with our third recommendation, to provide 

guidance on quality requirements in contracts. The response cited 

existing FAR requirements and NAVSEA’s Contract Administration 

Quality Assurance Program. It also stated the planned quality team within 

NAVSEA 04 will be a resource for consultation on appropriate contract 

quality assurance provisions and that this, along with the progress in 

reducing deficiencies, is sufficient. We believe that greater attention to 

contractual quality provisions is needed. SUPSHIP quality assurance staff 

stated that a primary reason for the development of the Quality 

Performance Standard for Construction of Naval Vessels was to limit 

inconsistencies found in shipbuilding contract quality requirements that 

affected SUPSHIP’s ability to conduct effective quality oversight. As 

discussed in the report, we observed considerable variance in the 

specificity of contract quality provisions for different ship classes, and 

SUPSHIP’s suggested quality performance standard has not been fully 

incorporated in any shipbuilding contract. Therefore we continue to 

believe that additional guidance on quality, including the extent to which 

the quality performance standard should be incorporated, would be 

beneficial for the Navy.

DOD concurred with our fourth recommendation, noting that, as part of its 

ongoing Better Buying Power initiative, it plans to better align contractor 

profitability with DOD goals through the use of contract incentives; actions 

that will assist in improving quality in shipbuilding. DOD explained that as 

part of this effort, the Office of the Secretary of Defense will revise and 

reissue guidance on the use of incentives in defense acquisition 

strategies. Its response noted that new tools, along with existing tools, 

provide sufficient opportunity for program managers and contracting 

officers to ensure the construction of quality ships for the Navy. 

DOD also partially concurred with our fifth recommendation, to determine 

whether using design drawings in SUPSHIP quality inspections and 

increasing the focus on random and in-process inspections would be 

beneficial. DOD stated that use of design drawings is essential and is 

being used, but not necessarily by the same personnel that use checklists 

and other tools for inspections. It also said that random and in-process 

inspections are all necessary, but that the correct balance should be left 

to individual ship programs. We found that SUPSHIP quality assurance 
 

Page 61 GAO-14-122 Navy Shipbuilding

teams that have trained their staff to use design drawings—a commercial 

best practice—report benefits from this approach. Also, our work on 

commercial buyers’ quality assurance practices consistently identified 

random, in-process oversight as a key tool in assuring that shipyards are 

following their own construction quality processes. DOD’s response did 

not identify any additional actions the Navy plans to take to address our 

recommendation. We continue to believe that a SUPSHIP-wide 

assessment of the potential benefits of these practices could yield quality 

improvements.

DOD also provided technical comments that were incorporated as 

appropriate. These comments included questions about the deficiency 

data we reported for the T-AKE ship class. We reviewed individual 

deficiency reports (trial cards) and compared results with program office 

and shipbuilder reported data. We resolved anomalies and updated the 

data on T-AKE presented in this report.

We also provided the Navy shipbuilding contractors, commercial ship 

buyers, international shipbuilders, and classification societies we met with 

relevant excerpts of the report and incorporated their technical comments 

as appropriate.

We are sending copies of this report to the Secretary of Defense, 

Secretary of the Navy, interested congressional committees, and other 

interested parties. This report will also be available at no charge on 

GAO’s website at http://www.gao.gov. 

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-4841 or by e-mail at mackinm@gao.gov. Contact 

points for our Offices of Congressional Relations and Public Affairs may 

be found on the last page of this report. Key contributors to this report are 

listed in appendix XI.

Michele Mackin, Director

Acquisition and Sourcing Management
 

Page 62 GAO-14-122 Navy Shipbuilding

List of Committees

The Honorable Carl Levin

Chairman

The Honorable James M. Inhofe

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Howard P. “Buck” McKeon

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives

The Honorable Richard J. Durbin

Chairman

The Honorable Thad Cochran

Ranking Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Rodney Frelinghuysen

Chairman

The Honorable Pete Visclosky

Ranking Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 63 GAO-14-122 Navy Shipbuilding

To identify the extent to which newly constructed Navy ships had quality 

problems and the actions that Navy has taken to improve quality, we 

reviewed the Navy’s Board of Inspection and Survey reports for all Navy 

ships delivered from 2006 through May 2013: including Arleigh Burke 

class (DDG 51) destroyers, USS George H. W. Bush (CVN 77) aircraft 

carrier, USNS Howard O. Lorenzen (T-AGM 25) missile range 

instrumentation ship, Lewis and Clark-class (T-AKE) dry cargo and 

ammunition ships, Littoral Combat Ship (LCS)—both the Independence 

and Freedom variants, USS Makin Island (LHD 8) Wasp-class 

amphibious assault ship, USNS Montford Point Mobile Landing Platform, 

San Antonio-class (LPD 17) amphibious transport dock ships, USNS 

Spearhead Joint High Speed Vessel, and Virginia-class submarines (SSN 

774). Even though the lead LPD and SSN ships were built outside of the 

last 8 years, we included these two vessels in our sample because the 

rest of the class was built within the last 8 years. We also drew from our 

prior work on these programs, Navy documents created to address 

quality issues, and various other Navy reports, such as those from the 

Navy’s Judge Advocate General.

To determine the number and type of deficiencies for each vessel, we 

obtained data from the Navy’s Board of Inspection and Survey’s 

(INSURV) Material Inspection data warehouse and the Navy’s Technical 

Support Management (TSM) system. TSM is the primary database the 

Navy’s Supervisor of Shipbuilding, Conversion and Repair uses to track 

the status of new ship construction deficiencies. We analyzed these data 

to determine the total number of open deficiencies (1) when the ship was

delivered to the Navy; (2) 120 days following ship delivery—the 

approximate time when final outfitting is completed prior to the ship 

leaving the shipyard; and (3) 1 year following ship delivery. Total 

deficiencies include those identified during construction, builder’s trials, 

and acceptance trials that were not closed by the milestones listed above. 

Because TSM deficiency data is compiled on paper forms and manually 

entered into the system, we considered as being closed at delivery those 

deficiencies that were closed through 7 days following the date the ship 

was delivered to the Navy (with the exception of the T-AKE ship class), as 

stated on the Navy’s Naval Vessel Register. To the extent feasible, we 

reviewed these data for completeness and for obvious inconsistency 

errors and compared them with paper documents that also catalogue 

these deficiencies. When we found obvious discrepancies while 

conducting our analyses, we brought them to the attention of the Navy 

Sea Systems Command and INSURV and worked with them to 

understand, correct, or omit the discrepancies. The data we collected 

represents the deficiencies at a particular moment in time. Further, 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 64 GAO-14-122 Navy Shipbuilding

deficiencies may be subdivided into multiple deficiencies or consolidated 

into a smaller number when the Navy and its shipbuilding contractors 

determine whether the government or the shipbuilder is responsible for 

correcting the respective deficiencies. For ships we reviewed, we 

determined that TSM deficiency data were sufficiently reliable for the 

purposes of this report with a few exceptions. These exceptions relate to 

data for T-AKE class ships. TSM data did not cover T-AKE 1 through TAKE 6. Data for T-AKE 12 had numerous data errors and is therefore not 

reported on. For other T-AKE ships, we reviewed deficiency 

documentation (trial cards) to resolve discrepancies between TSM and TAKE program office data.

We catalogued several hull, mechanical, and electrical issues with each 

ship class delivered in the last 8 years, in addition to the individual hulls 

that were also delivered during this period. To create this list of illustrative 

examples, we asked Navy officials familiar with each ship class to identify 

problems that occurred during the construction of the vessels. We also 

asked officials from INSURV to identify significant issues that affected 

multiple hulls within each major class. We then identified several of the 

issues to highlight that were illustrative of hull, mechanical, and electrical 

problems. Given the uniqueness of the ships’ capabilities, we elected not 

to catalog quality issues with weapon systems or other warfighting 

systems. To supplement this analysis, we held discussions with or 

requested information from a number of Navy officials involved in Navy 

shipbuilding. These included the Supervisor of Shipbuilding, Conversion 

and Repair (SUPSHIP), Bath, Maine; Groton, Connecticut; Gulf Coast, 

Pascagoula, Mississippi; Newport News, Virginia; Bath Detachment, San 

Diego, California; Bath Detachment, Marinette, Wisconsin; and Gulf 

Coast Detachment, Mobile, Alabama. We also interviewed the Director of 

the Board of Inspection and Survey and officials in the Naval Sea 

Systems Command Management Group for SUPSHIP; Naval Sea 

Systems Command Contracting Directorate; Naval Sea Systems 

Command Engineering Directorate; Naval Sea Systems Command 

Surface Warfare Directorate; Naval Sea Systems Command Nuclear 

Propulsion; Program Executive Offices for Carriers; Program Executive 

Office for Submarines, and the Littoral Combat Ship; representatives from 

acquisition program offices including PMS 317 (LPD 17), PMS 377 (LHD 

8 and LHA 6), PMS 385 (Joint High Speed Vessel and Mobile Landing 

Platform), PMS 400 D (DDG 51), and, PMS 501 (LCS); Norfolk Ship 

Support Activity—Regional Maintenance Center; Southwest Regional 

Maintenance Center; Commander, Operational Test and Evaluation 

Force; Military Sealift Command; Fleet Forces Command; and the 

Defense Contract Management Agency.
Appendix I: Objectives, Scope, and 

Methodology

Page 65 GAO-14-122 Navy Shipbuilding

We also visited eight U.S. Navy contractor shipyards that build some of 

the larger Navy vessels and met with representatives from the contractor 

that owns each shipyard, including Austal USA in Mobile, Alabama; 

General Dynamics Electric Boat Corporation in Groton, Connecticut and 

Quonset Point, Rhode Island; General Dynamics NASSCO in San Diego, 

California, and General Dynamics Bath Iron Works in Bath, Maine; 

Huntington Ingalls Industries Ingalls Shipbuilding in Pascagoula, 

Mississippi and Huntington Ingalls Industries Newport News Shipbuilding 

in Newport News, Virginia; Marinette Marine Corporation in Marinette, 

Wisconsin; and, V.T. Halter Marine at its shipyard in Pascagoula, 

Mississippi. In addition, we observed the underway portion of the 

acceptance trial for T-AKE 13 in San Diego, California.

Lastly, we reviewed the Navy’s efforts to improve ship quality by 

reviewing key memos and documents outlining the Back to Basics 

program and meeting with the officials responsible for implementing these 

efforts—most of whom were in the Navy’s Supervisor of Shipbuilding, 

Conversion and Repair commands. We also reviewed selected parts of 

11 fixed-priced-incentive and firm-fixed priced Navy shipbuilding 

contracts, such as clauses pertaining to quality requirements and ship 

delivery, for San Antonio class (LPD 17) amphibious transport dock ships 

(one contract); America class (LHA 6 and LHA 7) amphibious assault ship 

(two contracts); Arleigh Burke class (DDG 51) destroyer (one contract); 

Joint High Speed Vessel (one contract); Littoral Combat Ship (LCS)—

Freedom and Independence variants (two contracts); Lewis and Clark 

class (T-AKE) dry cargo and ammunition ship (one contract); USNS 

Howard O. Lorenzen (T-AGM 25) missile instrumentation ship (one 

contract) ; USS Makin Island (LHD 8) amphibious assault ship (one 

contract); and the Mobile Landing Platform (one contract).

To assess key practices used by commercial ship buyers and 

shipbuilders, we interviewed and met with leading commercial companies 

from the cruise, oil and gas, and commercial shipping industries, including 

Carnival Corporation; Chevron Corporation; Ensco plc; ExxonMobil; A.P. 

Moller-Maersk A/S; Noble Corporation; Norwegian Cruise Lines; Royal 

Caribbean Cruises, Ltd.; and Seadrill, Ltd. We identified leading 

companies by analyzing such indicators as annual sales, number of 

vessels owned and procured, and total market share. Our methodology 

drew from our previous shipbuilding best practices work that identified the 

commercial shipbuilding industries that support cruise, oil and gas, and 

commercial shipping sectors as being most similar to Navy shipbuilding. 

Cruise ships are more costly and complex than other types of commercial 

ships, densely packed, and require significant outfitting, making them 
Appendix I: Objectives, Scope, and 

Methodology

Page 66 GAO-14-122 Navy Shipbuilding

somewhat similar to military ships. Additionally, cruise ship buyers often 

include innovations or design changes in their ships and start new 

classes of ships regularly in order to maximize passenger satisfaction; 

approaches that allowed us to examine quality oversight practices on 

recent lead ship programs and the outcomes of specific commercial 

practices. The cruise line companies we met with are leaders in their 

industry as identified in our previous work and based on operating 

revenue or fleet size. We met with ship buyers from the oil and gas 

industry because drill ships, floating production storage and offloading 

(FPSO) vessels and offshore oil platforms are complex, dense structures. 

Furthermore, FPSOs, essentially floating refineries, are often one of a 

kind, costing well over $1 billion. The oil and gas companies we met with 

are leaders in their industry as identified in our previous work as well as 

our assessment of top operators of drilling vessels. Similarly, we met with 

Maersk Line Limited and Maersk Drilling, two business units within A.P. 

Moller-Maersk A/S, because the company was identified as an industry 

leader in our prior work and remains one of the largest shipping 

companies in the world. For example, Maersk Line Limited acquires many 

ships: in 2012 the company took delivery of 19 new ships. For each 

commercial ship buyer, we requested deficiency data on one or more new 

construction ships they had acquired. With the exception of one FPSO, all 

of these ships were delivered to the buyer in 2012 or 2013. We assessed 

the reliability of this data by obtaining information on the systems that 

stored the data and interviewing ship buyer and shipbuilder 

representatives knowledgeable about the data. We determined that the 

data were sufficiently reliable for the purposes of this report. We also 

identified common processes and tools used by these ship buyers and 

shipbuilders to ensure the expected level of quality.

To determine the extent to which Navy quality assurance processes use 

common commercial practices, we reviewed data and information 

obtained from the Navy and its shipbuilding contractors, as well as from 

the leading commercial ship buyers and shipbuilders. We also reviewed 

relevant payment and retention clauses for 11 fixed-priced Navy 

shipbuilding contracts. During our meetings with SUPSHIP and program, 

engineering, and contracting officials from the Naval Sea Systems 

Command directorates, we inquired about the Navy’s quality assurance 

practices. During site visits to eight U.S. private shipyards that build Navy 

ships, we discussed with shipyard representatives their quality assurance 

processes and the steps taken to ensure their ships meet the Navy’s 

quality expectations. During our site visits, we collected documentation 

related to the shipyard’s quality assurance activities, including quality 
Appendix I: Objectives, Scope, and 

Methodology

Page 67 GAO-14-122 Navy Shipbuilding

policies, plans, and procedures, and we also observed quality assurance 

inspection activities when possible.

We also met with officials from international commercial shipyards that 

are responsible for building a variety of complex ships, including Meyer 

Werft (Germany) and STX Finland (Finland), which both build cruise 

ships; and Hyundai Heavy Industries and Daewoo Shipbuilding and 

Marine Engineering (South Korea), which build commercial ships, 

including containerships, liquefied natural gas carriers, drill ships, FPSOs, 

and oil tankers. We identified these shipbuilders as producers of highquality vessels through a combination of our previous work and 

recommendations from shipbuilding experts and the ship buyers that 

participated in our review. At the shipyards, we met with ship buyers’ 

representatives who were responsible for overseeing the construction of 

the ships and monitoring the construction schedule. Where possible, we 

observed quality assurance activities at commercial shipbuilders or 

viewed systems related to ensuring quality, such as quality database 

systems. We collected documentation of quality assurance activities, 

such as quality policies and inspection plans, where available. We met 

with representatives from three classification societies, including the 

American Bureau of Shipping (ABS), Det Norske Veritas, and Lloyd’s 

Register regarding their roles in commercial ship construction. We also 

met with representatives from Aker Shipyard in Philadelphia, 

Pennsylvania, to discuss how a U.S. shipbuilder that solely builds 

commercial vessels approaches quality assurance.

To better understand the role of classification societies in Navy and 

commercial shipbuilding, we met with engineering and marine surveying 

representatives from ABS to obtain an overview of how they conduct their 

work. We held discussions on the role of classification in Navy 

shipbuilding with Navy shipbuilding contractors, including Austal USA, 

Mobile, Alabama; General Dynamics Bath Iron Works, Bath, Maine; 

General Dynamics NASSCO, San Diego, California; Marinette Marine 

Corporation, Marinette, Wisconsin; and V.T. Halter Marine, Pascagoula, 

Mississippi. To learn the extent to which the Navy’s approach to new ship 

construction oversight is similar to or different than the marine surveying 

services provided by ABS during construction of Navy ships, we met with 

officials from SUPSHIP locations at Bath, Maine; Bath Detachment, San 

Diego, California; Bath Detachment, Marinette, Wisconsin; Gulf Coast, 

Pascagoula, Mississippi; and Mobile, Alabama. We also held discussions 

on this matter with officials from the Naval Sea Systems Command 

SUPSHIP Management Group; Military Sealift Command; Naval Sea 

Systems Command Engineering Directorate; Naval Sea Systems 
Appendix I: Objectives, Scope, and 

Methodology

Page 68 GAO-14-122 Navy Shipbuilding

Command Surface Warfare Directorate; Program Executive Office Littoral 

Combat Ship; and representatives from acquisition program offices 

including PMS 385 (Joint High Speed Vessel and Mobile Landing 

Platform). We reviewed the classification rule set developed by the Navy 

and ABS (the Naval Vessel Rules), as well as other classification rule 

sets pertaining to Navy and or commercial vessels, such as High-Speed 

Naval Craft rules and the Steel Vessel rules. In addition, we reviewed the 

findings and observations of ABS’s marine surveyors for the Littoral 

Combat Ship which is being built in accordance with the Naval Vessel 

Rules, as well as the Joint High Speed Vessel, which is built in 

accordance with ABS’s Naval High Speed Naval Craft Guide. We also 

spoke with representatives from other classification societies, including 

Det Norske Veritas and Lloyd’s Register, to discuss their approach to 

classification of commercial and navy vessels. When meeting with 

commercial ship buyers and shipbuilders, we also discussed the ship 

classification process and the role of classification societies in 

shipbuilding.

We conducted this performance audit from March 2012 to November 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Stages of Shipbuilding

Page 69 GAO-14-122 Navy Shipbuilding

There are four primary phases in shipbuilding: pre-contracting, contract 

award, design and planning, and construction, with each phase building 

upon the work completed in earlier stages. Within each phase, a number 

of key events have an influence on the overall quality of the ship. In 

addition, within Navy shipbuilding, additional key activities take place 

following ship delivery. Table 2 describes some of the more significant 

events occurring throughout the shipbuilding process.

Table 2: Key Events Occurring During Navy and Commercial Shipbuilding 

Stage Key event Description

Pre-contracting 

activities

Contract award

Concept refinement Ship buyer determines necessary requirements and desired capabilities, 

develops an acquisition strategy.

Early-stage design Ship buyer refines its operational and performance requirements into 

specifications that will be included in the shipbuilding contract.

Contract award and negotiation Ship buyer selects and enters into a shipbuilding contract with the chosen 

shipbuilder(s).The contract includes the ship’s specification, which details 

how the shipbuilder will build the ship and meet the buyer’s requirements.

Design and planning Detailed engineering design Ship designer develops all aspects of the ship’s structure and routing of 

major distributive systems, such as electrical or piping, throughout the ship. 

A three-dimension (3D) computer-aided-design model is often generated, 

along with completion of any computer modeling or simulation analyses, 

such as those to test the structural integrity of the ship design throughout 

its service life or under certain sea conditions.

Pre-construction and planning 

activities

Shipbuilder plans production flow and develops two-dimensional paper 

drawings that, once approved by the ship buyer, will be used by shipyard 

workers to build the ship. Ship buyer, shipbuilder, and classification society 

(if applicable) collectively determine quality-related test and inspection 

points during ship construction.

Construction Steel cutting/block fabrication Ship fabrication begins as large steel or aluminum plates are cut and 

welded to form the basic building units for a ship called “blocks.” Blocks 

comprise compartments, which include accommodation space, engine 

room, and storage areas. 

Assembly and outfitting of blocks Upon completion of a block, piping, brackets for machinery or cabling, and 

ladders, among other things, are installed. Installing these items at this 

stage is preferable because access to spaces is not limited by doors or 

other machinery, requiring less time and effort than at later stages of 

construction.

Keel laying and block erection Blocks are welded to form larger sections, referred to as grand blocks, 

which comprise the ship’s structure. The shipbuilder then assembles and 

welds grand blocks and blocks in the drydock to form the keel. Machinery, 

engines, propeller shafts and other large items are also installed during this 

stage.

Launch Once the ship is watertight, the drydock is flooded and the ship is towed to 

a docking area where final outfitting of machinery and equipment occur.a

 

Appendix II: Stages of Shipbuilding
Appendix II: Stages of Shipbuilding

Page 70 GAO-14-122 Navy Shipbuilding

Stage Key event Description

System testing and 

commissioning

Parts, materials, and machinery, such as engines, pumps, and associated 

control instrumentation used in the ship, are generally tested by the

manufacturer (factory acceptance test) to ensure quality standards, 

technical specifications, and performance requirements are met. 

Installation and connection of these components create subsystems. The 

shipbuilder and ship buyer ensure the subsystems and systems are 

installed in accordance to the ship’s specifications and conduct tests to 

ensure systems are operating as intended and meet performance 

requirements.

Sea trials Once the shipbuilder is satisfied that the ship is seaworthy and meets the 

buyer’s requirements, the ship buyer’s representatives, and if applicable 

the classification society’s surveyors, are brought onboard and the ship 

embarks on a series of dockside and at-sea tests where the overall quality 

and performance of the ship is evaluated against the contractually required 

specifications. Sea trials provide early verification of the buyer’s 

requirements and allow time for any corrective actions that may be required 

to meet the buyer’s requirements prior to ship delivery. Navy shipbuilding 

programs generally conduct two sets of sea trials—builder’s trials and 

acceptance trials. Builder’s trials test the vessel’s propulsion, 

communications, navigation and mission systems, as well as all related 

support systems. Following the successful completion of builder’s trials, 

acceptance trials are conducted by the Navy’s Board of Inspection and 

Survey (INSURV). 

Delivery/Acceptance Ship buyer takes custody and assumes ownership of the vessel. In the 

commercial world, the ship is complete and commences operations. In 

Navy shipbuilding, a Material Inspection and Receiving Report (Form DD 

250) is prepared, representing the official transfer of custody and 

ownership to the Navy. Any unresolved deficiencies or remaining work 

items are segregated by the entity that is responsible for completion of the 

work (Navy or shipbuilder) and identified on this document.

Post-delivery 

activities specific to 

the Navy

Final outfitting Crew boards the ship and begins training; and mission systems are 

installed.b

 

Post-delivery tests and trials Operational tests are conducted on the ships combat and mission critical 

systems.

Final contract trials INSURV conducts a second round of sea trials just prior to the expiration of 

the ship’s guarantee period.c 

Post Shakedown Availability Planned maintenance period prior to the maiden voyage where work is 

performed to install class-wide upgrades or ship improvements, perform 

maintenance, and correct new or previously identified construction 

deficiencies. Usually performed using a different contract than shipbuilding 

contract.

Shipbuilding and Conversion, 

Navy Obligation and Work 

Limiting Date 

The official date where full responsibility for funding the ship’s operation 

and maintenance is transferred from the acquisition command to the 

operational fleet. 

Source: GAO analysis of Navy and industry provided data.

a

The level of outfitting completed prior to launch varies by shipbuilder and ship type, but is 

predetermined according to the builder’s production plan. Shipbuilders generally agree that launching 

a ship having a lower level of outfitting completed than what was planned can increase the costs to 

complete the work.
Appendix II: Stages of Shipbuilding

Page 71 GAO-14-122 Navy Shipbuilding

b

On nuclear-powered Navy ships, the ship’s crew begins boarding and training prior to ship delivery.

c

The guarantee period is the time after delivery where the shipbuilder is responsible for correcting 

any defects or deficiencies in accordance to the terms and conditions of the contract.
Appendix III: Lewis and Clark Dry Cargo and 

Ammunition Ship Class (T-AKE)

Page 72 GAO-14-122 Navy Shipbuilding

The Lewis and Clark class of dry cargo and ammunition ships (T-AKE 1) 

consists of 14 ships which have been delivered to the Navy. The first ship 

was delivered in 2006 and the final ship was delivered in 2012.

We analyzed data provided by the Supervisor of Shipbuilding, 

Conversion, and Repair (SUPSHIP) to determine the number of open 

deficiencies at delivery, 120 days after delivery, and one year after 

delivery. Our analysis of the available data found that recently delivered 

T-AKEs had noticeably fewer open deficiencies at delivery compared to 

other ship classes. Unlike other classes in our review, the Navy was 

responsible for the majority of these deficiencies.

Table 3: Open Deficiencies on T-AKE Class Ships at Various Points in Time after Delivery

Deliverya 120 days after delivery 365 days after delivery

Ship 

(delivery 

date) Importanceb Total 

deficienciesc

Percentage of 

contractorresponsible 

deficienciesd Total 

deficiencies

Percentage 

of contractorresponsible 

deficiencies

Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

T-AKE 7

(March 2009)

Part 1 22 5 5 0 1 0 

Part 2 154 1 44 2 3 0 

Part 3 3 0 2 0 0 0 

T-AKE 8

(September 

2009)

Part 1 5 20 0 0 0 0 

Part 2 40 18 18 6 2 50

Part 3 1 0 0 33 0 0 

T-AKE 9

(February 

2010)

Part 1 29 8 4 25 1 100

Part 2 136 2 14 7 1 100

Part 3 5 0 0 0 0 0

T-AKE 10

(July 2010)

Part 1 5 40 5 40 4 50

Part 2 39 8 21 14 10 10

Part 3 0 0 0 0 0 0

T-AKE 11

(February 

2011)

Part 1 6 0 1 0 0 0 

Part 2 17 12 5 20 2 50

Part 3 0 0 0 0 0 0 

T-AKE 13

(April 2012)

Part 1 3 0 2 0 1 0 

Part 2 32 4 24 4 4 0 

Part 3 0 0 0 0 0 0 

T-AKE 14 Part 1 3 0 0 0 - - 

Appendix III: Lewis and Clark Dry Cargo and 

Ammunition Ship Class (T-AKE) 
Appendix III: Lewis and Clark Dry Cargo and 

Ammunition Ship Class (T-AKE)

Page 73 GAO-14-122 Navy Shipbuilding

Deliverya 120 days after delivery 365 days after delivery

Ship 

(delivery 

date) Importanceb Total 

deficienciesc

Percentage of 

contractorresponsible 

deficienciesd Total 

deficiencies

Percentage 

of contractorresponsible 

deficiencies

Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

(October 

2012)

Part 2 21 0 1 0 - - 

Part 3 0 0 0 0 - -

Source: GAO analysis of Navy data as of March 2013.

Notes: (1) TSM relies on user-entered information, which can be unreliable. T-AKE 12’s TSM data did 

not pass our data reliability standards because 98 percent of the deficiencies were opened and 

closed in the system on the same day—a date after the ship had been delivered to the Navy. (2) 

Deficiencies with missing Importance designations are not included in this table.

a

The table counts deficiencies from the Navy’s Technical Support Management (TSM) system which 

were closed after the official delivery date listed in the Naval Vessel Register, www.nvr.navy.mil, 

including those deficiencies where it was subsequently determined no further corrective action would 

be taken. In some instances, similar types of deficiencies were consolidated into a single deficiency 

prior to ship delivery. In other instances, uncorrected deficiencies were closed and transferred to final 

contract trials deficiencies (trial cards). 

b

Deficiencies are numbered by their significance and order of importance as Part 1, Part 2, and Part 

3. The Navy’s Board of Inspection and Survey (INSURV) defines a Part 1 deficiency is an important 

deficiency which is likely to cause the ship to be unseaworthy, substantially reduce the ability of the 

ship to carry out an assigned mission, or cause serious injury to personnel or serious damage to 

important material or equipment. According to INSURV, Part 2 deficiencies are less significant or do 

not meet the criteria for Part 1 deficiencies, but should be corrected to restore the ship to required 

specifications. INSURV classifies Part 3 deficiencies as those that will require either major alterations 

to correct (design related) or modifications that are too costly to effect during the life cycle of the ship.

c

The Navy’s Board of Inspection and Survey (INSURV) documents all deficiencies which require 

corrective action to bring the material condition of the ship to required specifications. Deficiencies 

may have been identified during INSURV or builder’s trials.

d

Percentage is rounded to the nearest whole percent. Navy program managers and SUPSHIP may 

assign responsibility for correcting a deficiency to the contractor if the contractor, sub-contractors, or 

vendors do not meet the requirements of the shipbuilding contract. Where data were available, we 

determined the percent of Part 1, Part 2, Part 3, and total deficiencies designated as contractorresponsible versus government-responsible. In some cases, the responsible party for correcting a 

deficiency may alternate between the Navy and the contractor based on additional investigations into 

the issues.
Appendix IV: San Antonio Amphibious 

Transport Dock Ship Class (LPD 17)

Page 74 GAO-14-122 Navy Shipbuilding

The San Antonio class of amphibious transport docks (LPD 17) consists 

of eight ships which have been delivered to the Navy. The first ship was 

delivered in 2005. As of September 2013, the Navy has three ships under 

construction. The San Antonio class has generally seen a decline in the 

number of open deficiencies at delivery, yet each ship still has a large 

number of open deficiencies.

We analyzed data provided by the Supervisor of Shipbuilding, 

Conversion, and Repair (SUPSHIP) to determine the number of open 

deficiencies at delivery, 120 days after delivery, and one year after 

delivery. Our analysis found that recently delivered ships had thousands 

of open deficiencies, ranging from 1,403 on LPD 23 to 6,325 on LPD 21. 

The majority of the deficiencies open at delivery were the responsibility of 

the contractor with the exception of LPD 23 where only 40 percent of the 

open deficiencies were the contractor’s responsibility. The data below 

indicates that many of these deficiencies are being closed after the ships 

are delivered to the Navy and are being outfitted.

Table 4: Open Deficiencies on LPD 17 Class Ships at Various Points in Time after Delivery

Deliverya 120 days after delivery 365 days after delivery

Ship 

(delivery 

date) Importanceb Total 

deficienciesc

Percentage of 

contractorresponsible 

deficienciesd Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

LPD 21

(August 

2009)

Part 1 234 58 75 28 23 26

Part 2 6,078 79 1,385 49 465 57

Part 3 13 23 0 0 0 0 

LPD 22

(December 

2011)

Part 1 156 25 102 5 47 2 

Part 2 4,783 69 1,074 49 453 57

Part 3 24 63 1 100 0 0 

LPD 23

(September 

2012)

Part 1 88 25 55 18 - - 

Part 2 1,270 42 685 51 - - 

Part 3 45 2 37 0 - - 

LPD 24

(December 

2012)

Part 1 86 48 36 25 - - 

Part 2 1,891 58 667 48 - - 

Part 3 28 25 15 13 - - 

Source: GAO analysis of Navy data as of March 2013.

Notes: (1) Deficiencies with missing Importance designations are not included in this table.

Appendix IV: San Antonio Amphibious 

Transport Dock Ship Class (LPD 17)
Appendix IV: San Antonio Amphibious 

Transport Dock Ship Class (LPD 17)

Page 75 GAO-14-122 Navy Shipbuilding

a

For the purposes of this report, the table counts deficiencies from the Navy’s Technical Support 

Management (TSM) system which were closed seven days or more after the official delivery date 

listed in the Naval Vessel Register, www.nvr.navy.mil. Deficiencies closed after delivery but before 

the seventh day are not included.

b

Deficiencies are numbered by their significance and order of importance as Part 1, Part 2, and Part 

3. INSURV defines a Part 1 deficiency is an important deficiency which is likely to cause the ship to 

be unseaworthy, substantially reduce the ability of the ship to carry out an assigned mission, or cause 

serious injury to personnel or serious damage to important material or equipment. According to 

INSURV, Part 2 deficiencies are less significant or do not meet the criteria for Part 1 deficiencies, but 

should be corrected to restore the ship to required specifications. INSURV classifies Part 3 

deficiencies as those that will require either major alterations to correct (design-related) or 

modifications that are too costly to effect during the life cycle of the ship.

c The Navy’s Board of Inspection and Survey (INSURV) documents all deficiencies which require 

corrective action to bring the material condition of the ship to required specifications. Deficiencies 

may have been identified during INSURV or builder’s trials.

d

Percentage is rounded to the nearest whole percent. Navy program managers and SUPSHIP may 

assign responsibility for correcting a deficiency to the contractor if the contractor, sub-contractors, or 

vendors do not meet the requirements of the shipbuilding contract. Where data were available, we 

determined the percent of Part 1, Part 2, Part 3, and total deficiencies designated as contractorresponsible versus government-responsible. In some cases, the responsible party for correcting a 

deficiency may alternate between the Navy and the contractor based on additional investigations into 

the issues.
Appendix V: Littoral Combat Ship (LCS) Class

Page 76 GAO-14-122 Navy Shipbuilding

The Littoral Combat Ship (LCS) class consists of 3 ships which had been 

delivered to the Navy at the time of our review. The first hull was 

delivered in 2008. Currently, the Navy has seven ships under construction 

and has received funding to construct six ships. The Navy has an 

additional eight ships under contract which are not yet funded. The LCS

class consists of two different seaframe designs, the LCS 1 design 

(Freedom variant) and the LCS 2 design (Independence variant).

We analyzed data provided by the Supervisor of Shipbuilding, 

Conversion, and Repair (SUPSHIP) to determine the number of open 

deficiencies at delivery, 120 days after delivery, and one year after 

delivery. Our analysis found that both designs of the LCS class were 

delivered with a large number of open deficiencies at delivery. The 

majority of these deficiencies were the responsibility of the contractor. 

Our analysis found that over half of these deficiencies were closed after 

the ships were delivered to the Navy and were being outfitted.

Table 5: Open Deficiencies on LCS Class Ships at Various Points in Time after Delivery

Deliverya 120 days after delivery 365 days after delivery

Ship 

(Delivery 

date) Importanceb Total 

deficienciesc

Percentage of 

contractorresponsible 

deficienciesd

Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

LCS 1

(September 

2008)

Part 1 151 72 86 62 30 37

Part 2 1,994 81 988 76 175 46

Part 3 109 82 56 77 11 36

LCS 2

(December 

2009)

Part 1 547 81 256 71 131 64

Part 2 3,715 71 2,079 60 819 56

Part 3 954 82 510 74 213 62

LCS 3

(June 2012)

Part 1 103 57 40 63 - - 

Part 2 1,178 75 482 65 - - 

Part 3 18 50 5 80 - - 

Source: GAO analysis of Navy data as of March 2013.

Notes: (1) Odd numbered LCS class ships (Freedom variant) are built at a Navy contractor shipyard 

in Marinette, Wisconsin, while even numbered ships (Independence variant) are built at a Navy 

contractor shipyard in Mobile, Alabama. (2) Deficiencies with missing Importance designations are 

not included in this table.

a

For the purposes of this report, the table counts deficiencies from the Navy’s Technical Support 

Management (TSM) system which were closed seven days or more after the official delivery date 

listed in the Naval Vessel Register, www.nvr.navy.mil. Deficiencies closed after delivery but before 

the seventh day are not included.

Appendix V: Littoral Combat Ship (LCS) 

Class 
Appendix V: Littoral Combat Ship (LCS) Class

Page 77 GAO-14-122 Navy Shipbuilding

b

Deficiencies are numbered by their significance and order of importance as Part 1, Part 2, and Part 

3. INSURV defines a Part 1 deficiency is an important deficiency which is likely to cause the ship to 

be unseaworthy, substantially reduce the ability of the ship to carry out an assigned mission, or cause 

serious injury to personnel or serious damage to important material or equipment. According to 

INSURV, Part 2 deficiencies are less significant or do not meet the criteria for Part 1 deficiencies, but 

should be corrected to restore the ship to required specifications. INSURV classifies Part 3 

deficiencies as those that will require either major alterations to correct (design related) or 

modifications that are too costly to effect during the life cycle of the ship.

c

The Navy’s Board of Inspection and Survey (INSURV) documents all deficiencies which require 

corrective action to bring the material condition of the ship to required specifications. Deficiencies 

may have been identified during INSURV or builder’s trials.

d

Percentage is rounded to the nearest whole percent. Navy program managers and SUPSHIP may 

assign responsibility for correcting a deficiency to the contractor if the contractor, sub-contractors, or 

vendors do not meet the requirements of the shipbuilding contract. Where data were available, we 

determined the percent of Part 1, Part 2, Part 3, and total deficiencies designated as contractorresponsible versus government-responsible. In some cases, the responsible party for correcting a 

deficiency may alternate between the Navy and the contractor based on additional investigations into 

the issues.
Appendix VI: Arleigh Burke Guided Missile 

Destroyer Ship Class (DDG 51)

Page 78 GAO-14-122 Navy Shipbuilding

The Arleigh Burke class of guided missile destroyers (DDG 51) consists 

of 62 ships which had been delivered to the Navy at the time of our 

review. The first ship was delivered in 1991. Currently, the Navy has 

received funding to construct an additional four ships. Despite being a 

well established program, the Arleigh Burke class continues to have a 

large number of open deficiencies at various points in time.

We analyzed data provided by the Supervisor of Shipbuilding, 

Conversion, and Repair (SUPSHIP) to determine the number of open 

deficiencies at delivery, 120 days after delivery, and one year after 

delivery. Our analysis found that recently delivered ships had a large 

number of open deficiencies, ranging from a low of 333 open deficiencies 

on DDG 110 to a high of 4,385 open deficiencies on DDG 109. The 

majority of the deficiencies open at delivery were the responsibility of the 

contractor. The data below indicates that many of these deficiencies were 

being closed after the ships had been delivered to the Navy and were

being outfitted.

Table 6: Open Deficiencies on DDG 51 Class Ships at Various Points in Time after Delivery

Deliverya 120 days after delivery 365 days after delivery

Ship 

(delivery date) Importanceb Total deficienciesc

Percentage of 

contractorresponsible 

deficienciesd Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

DDG 108

(July 2009)

Part 1 38 47 17 0 6 0 

Part 2 1,186 72 100 11 52 4 

Part 3 1,981 90 94 24 23 35

DDG 105

(August 2009)

Part 1 96 70 15 27 8 50

Part 2 1,453 73 116 33 61 61

Part 3 487 92 22 59 19 68

DDG 109

(June 2010)

Part 1 52 71 10 20 3 67

Part 2 2,483 81 172 36 59 8 

Part 3 1,850 90 122 63 29 14

DDG 107

(July 2010)

Part 1 16 56 7 14 4 25

Part 2 672 63 61 38 31 29

Part 3 235 86 7 71 3 100

DDG 110

(February 

2011)

Part 1 12 25 8 13 4 25

Part 2 285 59 55 33 36 36

Part 3 35 66 1 0 0 0 

DDG 111 Part 1 17 29 5 0 2 0 

Appendix VI: Arleigh Burke Guided Missile 

Destroyer Ship Class (DDG 51)
Appendix VI: Arleigh Burke Guided Missile 

Destroyer Ship Class (DDG 51)

Page 79 GAO-14-122 Navy Shipbuilding

Deliverya 120 days after delivery 365 days after delivery

Ship 

(delivery date) Importanceb Total 

deficienciesc

Percentage of 

contractorresponsible 

deficienciesd Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

Total 

deficiencies

Percentage of 

contractorresponsible 

deficiencies

(April 2011) Part 2 2,057 74 279 36 140 15

Part 3 1,896 92 152 63 41 5 

DDG 112

(May 2012)

Part 1 20 20 5 0 - - 

Part 2 1,085 55 159 20 - - 

Part 3 0 0 0 0 - - 

Source: GAO analysis of Navy data as of March 2013.

Notes: (1) DDG 51 class ships are built at two Navy contractor shipyards in Bath, Maine and 

Pascagoula, Mississippi. (2) The ships are presented in chronological based on the date of delivery to 

the Navy. (3) Deficiencies with missing Importance designations are not included in this table.

a

For the purposes of this report, the table counts deficiencies from the Navy’s Technical Support 

Management (TSM) system which were closed seven days or more after the official delivery date 

listed in the Naval Vessel Register, www.nvr.navy.mil. Deficiencies closed after delivery but before 

the seventh day are not included.

b

Deficiencies are numbered by their significance and order of importance as Part 1, Part 2, and Part 

3. INSURV defines a Part 1 deficiency is an important deficiency which is likely to cause the ship to 

be unseaworthy, substantially reduce the ability of the ship to carry out an assigned mission, or cause 

serious injury to personnel or serious damage to important material or equipment. According to 

INSURV, Part 2 deficiencies are less significant or do not meet the criteria for Part 1 deficiencies, but 

should be corrected to restore the ship to required specifications. INSURV classifies Part 3 

deficiencies as those that will require either major alterations to correct (design related) or 

modifications that are too costly to effect during the life cycle of the ship.

c

The Navy’s Board of Inspection and Survey (INSURV) documents all deficiencies which require 

corrective action to bring the material condition of the ship to required specifications. Deficiencies 

may have been identified during INSURV or builder’s trials.

d

Percentage is rounded to the nearest whole percent. Navy program managers and SUPSHIP may 

assign responsibility for correcting a deficiency to the contractor if the contractor, sub-contractors, or 

vendors do not meet the requirements of the shipbuilding contract. Where data were available, we 

determined the percent of Part 1, Part 2, Part 3, and total deficiencies designated as contractorresponsible versus government-responsible. In some cases, the responsible party for correcting a 

deficiency may alternate between the Navy and the contractor based on additional investigations into 

the issues.
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 80 GAO-14-122 Navy Shipbuilding

Figure 16: Selected Quality Issues on USS George H.W. Bush (CVN 77)

Appendix VII: Selected Quality Issues in Navy 

Ship Classes
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 81 GAO-14-122 Navy Shipbuilding

Figure 17: Selected Quality Issues on DDG 51 Class Ships 
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 82 GAO-14-122 Navy Shipbuilding

Figure 18: Selected Quality Issues on USS Freedom (LCS 1)
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 83 GAO-14-122 Navy Shipbuilding

Figure 19: Selected Quality Issues on USS Independence (LCS 2)
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 84 GAO-14-122 Navy Shipbuilding

Figure 20: Selected Quality Issues on USS Makin Island (LHD 8)
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 85 GAO-14-122 Navy Shipbuilding

Figure 21: Selected Quality Issues on LDP 17 Class Ships
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 86 GAO-14-122 Navy Shipbuilding

Figure 22: Selected Quality Issues on SSN 774 Class Submarines
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 87 GAO-14-122 Navy Shipbuilding

Figure 23: Selected Quality Issues on USNS Howard O. Lorenzen (T-AGM 25)
Appendix VII: Selected Quality Issues in Navy 

Ship Classes

Page 88 GAO-14-122 Navy Shipbuilding

Figure 24: Selected Quality Issues on T-AKE Class Ships
Appendix VIII: Characteristics of Select 

Commercial Ships and Offshore Structures

Page 89 GAO-14-122 Navy Shipbuilding

Each of the ship buyers we met with acquires large, expensive, and 

technologically advanced vessels. Below are illustrative examples of 

ships and offshore structures acquired by the firms we met with, and 

some of the key characteristics associated with each of the respective 

vessels. 

Table 7: Key Characteristics of Selected Commercial Ships and Offshore Structures

Ship Builder

Approximate 

cost (U.S. 

Dollars) Length (feet)

Displacement 

(tons) Notable characteristics

Celebrity Cruises, Inc. 

(subsidiary of Royal 

Caribbean Cruises, 

LTD.) Reflection – 

cruise ship

(delivered October 

2012)

Meyer Werft, 

Germany

$750 million 1,047 feet 61,609 tons 

displacement

The fifth and last ship of the Solstice 

ship class, completing a $3.7 billion 

shipbuilding program. The ship has a 

crew of 1,253, can accommodate 

3,223 passengers, and incorporated 

advanced wastewater purification 

technology. 

Chevron Big Foot – 

tension leg platform 

production facility

(hull delivered March 

2013; vessel 

completion estimated 

to be at end of 2013)

Daewoo 

Shipbuilding and 

Marine 

Engineering, 

Korea 

$300 million 

(hull structure 

only)

373 feet 120,000 tons 

displacement

Upon completion, Big Foot will be 

the world’s largest and deepest 

tension leg platform, with a capacity 

of 80,000 barrels of oil per day.

Ensco plc. DS-6 – drill 

ship

(delivered January 

2012)

Samsung Heavy 

Industries, Korea

$600 million 750 feet 105,822 tons 

displacement

Dynamically positioned drill ship can 

drill to 40,000 feet in up to 10,000 

feet of water while maintaining a 

fixed, unanchored position.

Exxon Neftgas (a 

limited subsidiary of 

ExxonMobil)

Sakhalin – 1 Project, 

Arkutun-Dagi Berkut 

Platform Topsides 

(estimated delivery 

June 2014)

Daewoo 

Shipbuilding and 

Marine 

Engineering, 

Korea 

Proprietary 

information

Horizontal 

dimensions:

394 feet long 

by 230 feet 

wide

Vertical 

dimensions:

328 feet from 

bottom of the 

deck to top of 

the drill rig

~40,000 tons 

displacement

(topside unit 

only)

Upon completion in 2014, the 

topside will be transported and 

integrated to the offshore platform. 

The ice-resistant gravity based 

structure will become the largest oil 

and gas platform in Russia.

Noble Corporation

Noble Don Taylor – 

drill ship

(delivered April 2013)

Hyundai Heavy 

Industries, Korea

$600 million 752 feet 70,000 tons 

displacement

Dynamically positioned drill ship can 

drill to 40,000 feet in up to 10,000 

feet of water while maintaining a 

fixed, unanchored position.

Norwegian Cruise 

Line, Norwegian Gem

– cruise ship (delivered 

October 2007)

Meyer Werft, 

Germany

~$516 million 965 feet 50,259 tons 

displacement

The fourth ship in the Jewel ship 

class; has 1,188 cabins that can 

accommodate up to 2,384 

passengers with a crew of 1,154.

Appendix VIII: Characteristics of Select 

Commercial Ships and Offshore Structures
Appendix VIII: Characteristics of Select 

Commercial Ships and Offshore Structures

Page 90 GAO-14-122 Navy Shipbuilding

Ship Builder

Approximate 

cost (U.S. 

Dollars) Length (feet)

Displacement 

(tons) Notable characteristics

Qatar Petroleum and 

ExxonMobil

Q-Max – Liquefied 

Natural Gas (LNG) 

Carrier 

(lead ship delivered 

June 2008)

(1) Daewoo 

Shipbuilding and 

Marine 

Engineering, 

Korea (2) 

Samsung Heavy 

Industries, Korea

$300 million 1,132 feet 179,000 tons 

displacement

Revolutionary size for an LNG 

carrier with novel reliquefaction 

technology and first to use a tworudder and propeller design. Ship 

class built using three different hull 

and structure designs.

Royal Caribbean 

Cruises, LTD. Oasis of 

the Sea – cruise ship

(delivered October 

2009)

STX Finland 

Turku Shipyard, 

Finland

$1.4 billion 1,187 feet 116,00 tons 

displacement

The largest cruise ship in the world, 

with a crew of 2,100. The ship can 

accommodate 5,408 passengers at 

double occupancy and incorporated 

advanced wastewater purification 

technology.

Seadrill Ltd. West 

Auriga – drill ship

(delivered April 2013)

Samsung Heavy 

Industries, Korea

$600 million 748 feet 107,474 tons 

displacement

Dynamically positioned drill ship can 

drill to 37,000 feet in up to 12,000 

feet of water while maintaining a 

fixed, unanchored position.

Star Deep Water 

Petroleum, LTD (a 

Chevron-affiliated 

company)

Agbami – Floating 

Production, Storage 

and Offloading vessel

(delivered June 2008)

Daewoo 

Shipbuilding and 

Marine 

Engineering, 

Korea 

$1.2 billion

(hull only)

1,049 feet 460,000 tons 

displacement (full 

load) 

At the time of delivery was the 

world’s largest FPSO, with a 

production capacity of 250,000 

barrels of oil and 25 million cubic 

feet of natural gas per day.

Source: Industry-provided data.
Appendix IX: Navy Shipbuilding Contract 

Types

Page 91 GAO-14-122 Navy Shipbuilding

In Navy shipbuilding, the type of contract used can significantly influence 

the final cost of the ship. Table 8 below illustrates the basic differences 

between fixed-price and cost-reimbursement contracts and how each 

contract type can incentivize quality.

Table 8: Common Navy Shipbuilding Contract Types and Associated Risks to Quality Goals

Type of contract

Contract type use and 

application

Navy

responsibility

Shipbuilder 

responsibility

Who assumes 

the risk of cost 

overruns

How quality is 

affected

Costreimbursement 

contracts with 

incentive fee

Used when: 

Requirements not welldefined or lack of 

knowledge does not 

permit costs to be 

sufficiently estimated to 

use a fixed-price 

contract.

Applications:

Commonly used on 

lead ships.

Pays contractor’s 

allowable costs 

incurred, to the extent 

prescribed by the 

contract. Ship buyer is 

not guaranteed a 

completed ship at the 

expected level of 

quality within cost or 

schedule estimates.

Shipbuilder makes 

good faith effort to 

meet ship buyer’s 

needs within the 

estimated cost.

Navy Incentive fee may 

allow shipbuilder to 

earn higher fee if 

costs are kept low 

(e.g., by minimizing 

rework). 

Fixed-priceincentive (firm 

target) contract

Used when:

A ceiling price, target 

cost, target profit and 

profit adjustment 

formula can be 

established that will 

provide a fair and 

reasonable incentive. 

Provides for the 

contractor to assume 

an appropriate share of 

the risk.

Applications:

Commonly used for 

follow-on ships in a 

class.

Navy pays fixed target 

price which includes 

shipbuilder’s profit, but 

agrees to share cost 

overruns (or underruns) 

up to a ceiling price.

Shipbuilder delivers a 

ship at the expected 

level of quality, 

meeting all 

requirements and 

specifications as 

specified in the 

contract at or below 

the ceiling price.

Shared risk 

between Navy 

and shipbuilder 

up to agreed 

ceiling price. 

Shipbuilder 

generally bears 

most risk over 

that amount.

The Navy and the 

shipbuilder share 

cost overruns up to 

the agreed ceiling, 

which on previous 

contracts has been 

up to 138 percent 

of the target cost.

Appendix IX: Navy Shipbuilding Contract 

Types
Appendix IX: Navy Shipbuilding Contract 

Types

Page 92 GAO-14-122 Navy Shipbuilding

Type of contract

Contract type use and 

application

Navy

responsibility

Shipbuilder 

responsibility

Who assumes 

the risk of cost 

overruns

How quality is 

affected

Firm-fixed-price 

contract

Used when:

Fair and reasonable 

prices can be 

established at the 

outset.

Applications:

Limited use on new 

construction auxiliary 

and support ships.

Pays fixed price even if 

actual total cost of the 

ship falls short of or 

exceeds the contract 

price.

Shipbuilder delivers a 

ship at the expected 

level of quality, 

meeting all 

requirements and 

specifications as 

specified in the 

contract.

Shipbuilder Contract type 

assigns risk to the 

shipbuilder and 

may provide direct 

incentive to ensure 

timely delivery of 

the ship at the 

expected level of 

quality. Additional 

incentives for 

shipbuilder to limit 

risks to quality, 

improve production 

efficiencies, and 

reduce costs.

Source: GAO analysis of information obtained from the Federal Acquisition Regulation, and the Department of Defense’s Contract 

Pricing Preference Guide.
Appendix X: Comments from the Department 

of Defense

Page 93 GAO-14-122 Navy Shipbuilding

Appendix X: Comments from the Department 

of Defense
Appendix X: Comments from the Department 

of Defense

Page 94 GAO-14-122 Navy Shipbuilding
Appendix X: Comments from the Department 

of Defense

Page 95 GAO-14-122 Navy Shipbuilding
Appendix X: Comments from the Department 

of Defense

Page 96 GAO-14-122 Navy Shipbuilding
Appendix X: Comments from the Department 

of Defense

Page 97 GAO-14-122 Navy Shipbuilding
Appendix X: Comments from the Department 

of Defense

Page 98 GAO-14-122 Navy Shipbuilding
Appendix XI: GAO Contact and Staff 

Acknowledgments

Page 99 GAO-14-122 Navy Shipbuilding

Michele Mackin, (202) 512-4841 or mackinm@gao.gov. 

In addition to the contact above, Karen Zuckerstein, Assistant Director; 

Diana Moldafsky, Assistant Director; Christopher E. Kunitz; Peter W. 

Anderson; Ana I. Aviles; Mariana Calderon; Celina F. Davidson; Laurier 

R. Fish; Kristine Hassinger; Jean L. McSween; Jungjin Park, Roxanna T. 

Sun; Jeff M. Tessin; and Alyssa B. Weir made key contributions to this 

report.

Appendix XI: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(121032)
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